October 2022 Market Update

General Market Overview

 

Since our last market overview, the UK political scene has changed as Rishi Sunak has been *appointed as Prime Minister, superseding Liz Truss as she failed to impress with her and Kwasi’s economic strategy which caused a particularly volatile September month. Since his appointment, Rishi has pledged to reverse his predecessors’ policies and lead the UK out of an economic crisis.

UK assets have reacted well and bond markets have settled with the BoE announcing they “would buy as much government debt as needed to restore order” and Sterling strengthening from its all time low against the dollar last month, reaching recent highs of £1.16. Despite UK assets rebounding, inflation is still proving to remain an issue with no sign of slowing down.

The Bank of England has issued a statement warning the UK is currently facing its longest recessionary period in 33 years and are predicting unemployment to double by 2025. The general consensus is that a recession, sooner rather than later, would be the lesser of two evils as the higher that inflation continues to reach now, the deeper the resounding recession would be in the future. Hence why the Bank of England is consistently looking to raise interest rates in order to control inflation now.

As a result, the government have delayed the highly anticipated fiscal statement where they intended to deliver a detailed strategy best to restore the UK economy to the 17th of November. The purpose of the delay was to ensure that the treasury had the most precise figures and forecasts given the 3% interest rate outcome of the recent Monetary Policy Committee. For these reasons, Jeremy Hunt deemed it a “Very sensible decision to delay and upgrade to a full Autumn Statement”, whereby a more in-depth and robust approach to our current economic climate will be addressed.

Our Strategic Views

As a firm, we anticipate that global markets will remain volatile until inflation is under control. We envisage that the aggressive stance taken by the Federal Reserve in raising interest rates will have the desired effect on curbing inflation in the United States.  The Bank of England’s stance could then potentially follow suit enabling the green shoots of recovery during this high inflationary period; thus, a positive impact will be seen in the US and UK markets over the coming months.

Although we cannot predict or control where inflation is going, the US have shown signs of controlling inflation as their Consumer Price Index (CPI) has fallen from 8.2% to 7.7% across September and October. While this is not indicative that UK inflation will follow suit, this does potentially show that persistent interest rate hikes by the Federal Reserve can combat increasing inflation. With that in mind, holding a well-diversified portfolio is imperative in protecting investments from unpredictable economic conditions.

 

 

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