Weekly Market Update- Week Ending 04/08/2023

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Following the US Federal Reserve’s announcement last Wednesday, it was the turn of the Monetary Policy Committee at the Bank of England (BoE) to meet this week and set interest rates in the UK. Despite appeals from individuals and business leaders to pause one of the steepest hiking cycles in history, with inflation still nearly four times the BoE’s 2% target, it was widely forecast that these calls would fall on deaf ears.

With a vote of 6-3, the committee chose to increase interest rates for the 14th consecutive time by 0.25% to 5.25%, the highest level since April 2008. Of the three members that voted differently, 2 proposed a larger increase of 0.5%, while one member voted to keep rates unchanged.

As well as the decision on rates, the BoE also published its quarterly Monetary Policy Report. This report details the Bank’s predictions for the UK economy in the period ahead. They now expect UK inflation to fall to 4.9% in the final quarter of 2023, which would meet the Prime Minister’s declared target of halving inflation before the year-end. They also expect inflation to remain above the bank’s 2% target until the middle of 2025.

Earnings season has continued this week, with many of the world’s largest companies disclosing their results. In the UK, Diageo beat forecasts on Tuesday when it announced a 6.5% rise in annual sales as the company increased prices and the trend of customers switching to more premium spirits continued. The owner of brands including Johnnie Walker, Tanqueray Gin, Pimm’s, and Guinness saw pre-tax profit rise some 7% to £4.7bn. Guinness sales increased an impressive 16% over the year, as new products such as Guinness Zero (a firm favourite of mine during dry January) were introduced to the market.

Diageo raised its final dividend by 5% to 49.17 pence per share and announced a further $1bn share buyback programme. Popular with income investors, the company continues its enviable history of increasing its dividend every year since 2001.

John Naylor, Chartered FCSI – Head of Investment Committee
John Naylor