On Wednesday, the Office for National Statistics released the latest inflation data for the UK. Having been 10.4% on an annualised basis in February, there was hope and expectation that data for March would see a marked fall below 10%. Perhaps unsurprising for anyone who keeps a close eye on their food shopping prices, the data came in higher than predicted at 10.1% from a year ago.
The market quickly reacted to the news, with further interest rate rises now expected by the Bank of England (BoE), which meets next on the 11th May. The BoE Governor, Andrew Bailey, had previously signalled that interest rates might be held at the current 4.25% level, but it now looks increasingly likely that one or two further increases of 0.25% might be coming before the summer. This could result in a terminal interest rate of around 4.75%.
The UK has the unenvious title of having the highest inflation level amongst the G7 nations. In the US, prices rose 5% in March, the slowest in almost two years. In the eurozone, CPI for last month eased to 6.9%, the lowest since February 2022. It is hoped that the UK will follow a similar trend in the coming months as the fall in energy prices starts to act as a detractor and producers in energy-intensive industries start to see lower input costs.
Earnings season gathered pace this week with results broadly coming in ahead of analyst expectations. Investors are keeping a close eye on profit margins. In general, revenue has grown, reflecting a higher price charged, but costs in many cases are increasing at a faster rate. Next week sees many of the tech majors report earnings, including Microsoft, Alphabet, and Amazon all due. Microsoft has gained some 20% year-to-date; investors will be keen to see if the rise in share price is justified by the data.
John Naylor, Chartered FCSI, Head of Investment Committee