Global Economic Review

08 Aug 2022

Published in: Affinity Partners

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Recently we saw UK interest rates increase for the fifth Bank of England meeting in a row, putting them at 1.75%, the highest in the last 15 years.

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The BOE's Monetary Policy Committee voted 8-1 to increase the base rate to 1.75%, an attempt to prevent the inflationary impact of soaring energy prices being compounded by domestic price and wage pressures.

With many analysts forecasting a looming recession, I feel it important to share a review of where we are here in the UK verses the rest of the world.

One major concern for many people in the UK is that of the spiralling costs at the petrol pumps, with prices hitting over £2 per litre at one point. We have recently started to see prices fall slightly, but is it enough?

In the US they also say Gas prices hit an all-time national high across all states, with an average of $4.865 per gallon, still somewhat cheaper than we pay in the UK however!

In August we saw Brent crude oil price stand at $100.03 per barrel, compared to $93.89 for WTI oil and $106.8 for the OPEC basket. Europe's Brent crude oil, the U.S. WTI crude oil, and OPEC's basket are three of the most important benchmarks used by traders as reference for oil and gasoline prices. In March 2022, oil prices soared to highs not seen since 2008 as a result of the Russia-Ukraine war.

This year, we have seen interest rates rise in the UK to 1.75% up from 0.1%, driven by the economic hangover from Covid as well as the Russian invasion of Ukraine and the resultant sanctions and trade disruption. That has produced a dramatic increase in the global cost of living, especially in energy and foodstuffs.

UK inflation has hit a 40 year high at 9.1% but some economists are predicting that we could see headline inflation hit 15% next year. Undoubtedly inflation is a major concern but there is a danger of seeing things only from a UK perspective and assuming that it is only Britain that is struggling.

The overall EU inflation rate was 8.6% in June, with Malta having the lowest at 6.1% but Estonia coming in at 22%. The European Central Bank shocked economies in July by increasing interest rates by 50 basis points, with a further increase expected in September of a potentially equal measure.

Across the pond in the US, we see inflation at 9.06%, versus 5.39% last year. In addition, we saw the US Federal Reserve hike their interest rates by 0.75%, to a range of 2.25%-2.5%, with further hikes expected by year end. In fact many Federal Reserve members are predicting a level of 3-3.5% before the end of 2022.

If we look at the G20 countries, we see a range of interest rates, with Switzerland still in negative territory at -0.25%, and Argentina the highest at a staggering 52%!

Globally, we see inflation averaging at 7.5%, driven by food, fuel, energy and supply chain distribution problems.

From a currency perspective we have seen GBP/USD range from $1.1759 to $1.3957, GBP/EUR €1.1465 to €1.2190 and EUR/USD €0.9952 to €1.1908. With Sterling moving 16% against the USD, and 6% against the EUR, business has also had to combat the uncertainty of costs when trading internationally as well as the ever present strain of the rising costs of materials and energy.

The cost-of-living crisis is expected to continue through next year and begin to ease in 2024, and the Bank of England expects the UK economy to contract for 5 consecutive quarters. To be fair though, the BOE’s forecasting has never been particularly accurate.

There are still multiple factors that can contribute to the situation. The continuation of the war in Ukraine has no defined end date and rising tensions between the US and China, especially after Nancy Pelosi’s visit to Taiwan, are unsettling investors and governments alike. Of course, let’s not forget the political uncertainty in the UK as we await the announcement of Truss vs Sunak for the keys to 10 Downing Street. Could we see a snap general election later in 2022? Who knows?

What is certain is that volatility will happen and those who start planning early will be best placed to make the most of these fluctuations and suffer the least when the market moves against them. Planning is the key.

But, buckle in, it’s going to be a bumpy ride!

If you want to discuss how we can help you or your clients, then please contact me directly on andy.medler@halofinancial.com or call me on 0207 350 5470

Written by Andy Medler Corporate Partnerships Manager at Halo Financial