Weekly Market Update- Week Ending 20/05/2022

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” – Ronald Reagan

Prices continue to climb in the UK, with inflation jumping to 9% in the 12 months to April, having been 7% in March. The sharp rise has been blamed on the big increase in household energy bills, the jump in fuel costs post the invasion of Ukraine and, to a lesser extent, the rise in food prices. You have to go back some 40 years when Ronald Reagan was president to see the last time inflation was so high in the UK. Of the G7 countries, we now have the highest rate of inflation, more than Germany at 7.4% and France at 4.8%.

The increase in prices is putting huge pressure on household budgets. The latest jump also added to the calls on Chancellor Rishi Sunak to act now and not wait until the Autumn statement (likely in October) to announce further support. He had hoped to be able to leave new policies until that time as it would have coincided with the next big jump in the energy cap. His Tory MPs are urging him to take action now, with a combination of VAT cuts, energy bill support and an increase in welfare payments all on the table.

The latest inflation data came a day after the Governor of the Bank of England, Andrew Bailey, said he felt “helpless” in the face of climbing inflation. The Bank expects inflation to continue to climb in the coming months, with double digits not out of the question by the year-end. The difficulty the central bank faces is that many of the current inflationary forces are outside of its control. The ability to set interest rates is a powerful tool, but also a rather blunt one that can have many unintended consequences.

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