Investor confidence in UK growth drops as inflation and income squeeze unsettles markets
After the Office of National Statistics (ONS) figures published today revealed UK inflation soared to a 10-year high of 5.1%, putting further pressure on households across the UK, Business Leader got the views of some industry leaders on the impact it will have on the UK.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown shares her thoughts on the inflation stats.
The financial and labour markets have batted away Omicron like an annoying fly, but worries are increasing that inflationary pressures combined with an income squeeze could come with a painful sting.
The effect of the great resignation as workers search for higher pay is filtering through to wage growth, but the rises aren’t keeping pace with inflation. It’s a problem already buzzing in the ears of Bank of England policymakers, as they decide when and how quickly to raise rates to try and keep a lid on price rises.
The number of investors surveyed by HL, who expect interest rate rises in the next six months has fallen back slightly to 78%, compared to 83% in November, possibly reflecting this conundrum, but it’s clear the vast majority of investors are expecting another move by the Bank relatively quickly.
At the same time there has been a 2% drop in confidence in UK economic growth among investors, with the combined toxic effects of inflation and an income squeeze playing on minds. Even so optimism about UK assets has grown, with investor confidence up 4% compared to November with expectation that the weighting of listed companies towards the mining, energy and financial sectors should start to bear plumper fruit. The only sector to register a drop in confidence was North America, which is likely to be as a result of the jitters continuing about the fate of highly valued tech firms in a higher interest rate environment, which would reduce the value of their future earnings.
The FTSE 100 dipped lower in early trade, with Scottish Mortgage Investment Trust, which holds a raft of tech darlings like Tesla, Nio and Amazon among the biggest fallers amid concerns the tech juggernaut faces a road of pitfalls ahead. With other companies in the big data and payments space slipping back, information analytics firm Experian also slid by more than 2%. Companies reliant on a demand for housing were lower in early trading.
Right Move was one of the biggest fallers as worries resurface that it the beginning of the end of the red hot housing market could be in sight. House builders were also lower in early trading, with Persimmon dropping by more than 1% and Taylor Wimpey also in negative territory before recovering slightly after falls yesterday, following guidance about uncertainty ahead. Higher selling prices have helped them withstand rising costs elsewhere, but there are looming questions about just how long that will continue with an income squeeze intensifying and mortgage rates set to rise.
The investor confidence index is compiled by surveying clients on a monthly basis. Each month we send the investors’ confidence survey to 6,000 random clients and there is a representative split of our clients by age. On average around 10% of clients respond.
Confidence in UK Economic Growth has dropped this month, by 2%.
Impact on UK households
Below, Nick Woodward of Essential Living explains the most likely reasons behind why the cost of living is at such an excruciating high.
Due in part to Covid-support funds coming to an end, coupled with the recent rises in fuel and energy costs, ordinary people will unfortunately continue to bear the brunt of this crisis. The price of everything from everyday items such as clothes to your morning takeaway coffee has gone up in recent months.
Essential Living has revealed the monthly average cost of living for a single adult in the UK:
- Average monthly rent: £997
- Average utility bills: £94.35
- Average gas and electric bills: £93.83
- Average monthly shop: £175
- Average monthly travelcard: £110- £180
So, taking into account the average UK salary of approximately £31k a year, it’s no wonder the consequences of these rising prices are being felt by so many families, with tight budgets now stretching towards breaking point. Post Christmas can be one of the most difficult times of the year. People can of course aim to cut back as much as possible.
Impact on the labour market
Matthew Percival, CBI Director of Employment comments on the affect the figures will have on the UK employment market.
Rising inflation means that squeezed incomes joins the difficulties firms are facing filling vacancies as major challenges in the UK labour market. To break this cycle and deliver sustainably rising living standards, the UK needs a plan to unleash business investment and raise ambitions for growth.