The forecast in July was bright, as we enjoyed many days of warm weather. However, the economic forecast didn't seem so bright, with news of inflation and the cost of living crisis dominating the headlines.
Nevertheless, last month mostly saw a global rise in share prices. This would have been reflected in your portfolio values, which feels like the first bit of good news this year in terms of your investment.
Here in the UK, inflation continued to be the main story, as higher prices for food and fuel saw the annual rate of consumer price inflation rise to 9.4% in June, from 9.1% in May. Andrew Bailey, the Governor of the Bank of England (BoE), once again stated his desire to curb inflationary pressures, stating “There are no ifs or buts in our commitment to the 2% inflation target. That’s our job, and that’s what we will do”.
The International Monetary Fund expects the UK to post the weakest growth amongst its G7 peers in 2023, as it cuts its forecast to 3.2% this year and 0.5% for 2023. During May, the UK economy grew by 0.5% after having seen a contraction in April. The FTSE 100 Index increased by 3.5% during July, whilst the FTSE 250 Index rose by 8%.
In the US, their economy contracted for the second quarter in a row, seeing a 0.9% fall to the end of June. However, the Federal Reserve (Fed) Chair Jerome Powell, was still playing down the prospect of the US economy falling into recession. He said, “I do not think the US is currently in a recession… there are just too many areas of the economy performing too well”. During the course of July, the Dow Jones Industrial Average Index saw a rise of 6.7%.
Much like in the UK, the US is still dealing with inflationary pressures. During June the US consumer price inflation rose to 9.1% year on year. As was widely expected, the Fed raised their interest rates by 0.75 percentage points in July, taking their rates to a range of 2.25% to 2.5%. These rises always fuel concerns over the impact they could have on economic growth. The Fed are well aware of these concerns and Chair Powell looked to reassure investors when he said it would “likely become appropriate to slow the pace of increases” while they evaluate the impact these rises are having on inflation and growth.
In Europe, the European Central Bank (ECB) raised its interest rates for the first time in 11 years, seeing an increase of 50 basis points to zero. It is widely anticipated that further increases will happen and are likely to take place on a meeting-by-meeting basis. The President of the ECB, Christine Lagarde, cautioned “Economic activity is slowing… We expect inflation to remain undesirably high for some time”. Citing the impact of the war in Ukraine on energy supplies and food prices, the European Commission cut its growth forecast for the European Union to 1.4% in 2023. Finally, the German Dax Index saw an increase of 5.5% during July.
Elsewhere in the world
Following a theme with cut growth forecasts, the Bank of Japan advised they have downgraded their forecast for this year to 2.4% from 2.9%. They expect their economy to recover in the second half of the year, as the impact of Covid-19 and supply chain issues begin to ease. However, the Nikkei 225 Index rose by 5.3% in July.
As you can see, the major indices rose during July, which is good news for your investment portfolios. However, we can also see that we are a long way from the economic cloud being lifted. The markets are certainly hopeful that the policy tightening that has been seen by the central banks, will begin to have an impact on the inflationary pressures.
As always, if you have any questions regarding your investment or the current economic climate, please do not hesitate to contact us.