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12/22
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Investment market update: November 2022

By Charles Smith

Globally, inflation and recession risks continued to affect markets in November.

Head of the International Monetary Fund (IMF) Kristalina Georgieva suggested that inflation could be nearing its peak.

However, the Organisation for Economic Cooperation and Development (OECD) urged central banks around the world to keep raising interest rates to tackle moderate levels of inflation. So, while some of the pressure may be starting to ease, households and businesses are likely to still face challenges in 2023. 

Remember, while markets may experience volatility, you should focus on your long-term goals. While it is impossible to guarantee returns, markets have historically recovered from downturns. 

UK

Official statistics show that the UK economy contracted by 0.2% in the third quarter of 2022. This means the economy is on the brink of recession. Inflation also increased to another 40-year high in the 12 months to October to 11.1%.

Against this backdrop, new prime minister Rishi Sunak and chancellor Jeremy Hunt delivered the autumn statement. 

In sharp contrast to the mini-Budget delivered just a few months ago under the leadership of Liz Truss, the autumn statement increased taxes. Key changes were made to the Capital Gains Tax annual exempt amount, Dividend Allowance, and the threshold for paying additional-rate Income Tax. 

Hunt also confirmed that the State Pension triple lock would be maintained. This will give pensioners a record rise in income as the State Pension will increase by 10.1% in April 2023. 

In response to high inflation, the Bank of England (BoE) increased its base interest rate again. The rate is now 3% and the highest it’s been since the financial crisis. The central bank also warned that the UK could face a prolonged recession. 

The economic and political turmoil meant that Britain lost its title as Europe’s largest equity market to France. 

The Standard & Poor (S&P) Global Purchasing Managers Index (PMI) for the UK manufacturing sector fell to 46.2 in October. A reading below 50 suggests the sector is contracting and it’s the lowest reading since May 2020 when the pandemic affected operations. The war in Ukraine, weaker demand from China, and ongoing challenges related to Brexit were linked to the downturn.

People reigning in their spending are affecting the retail sector. Data from the Office for National Statistics (ONS) suggests that retail sales are still below their pre-pandemic levels. 

Several high street brands, including Joules and Made, have fallen into administration due to the challenging circumstances. 

The economic uncertainty is affecting households too.

The UK jobless rate increased to 3.6%, according to the ONS, which also found that wages are lagging behind inflation.

A report from think tank the Resolution Foundation found that two decades of wage stagnation is costing the average British worker £15,000 a year. The report suggests that wages will not return to the level before the 2008 financial crisis in real terms until 2027. 

Budgets are being stretched by household essentials. A report from Kantar Worldpanel found that grocery inflation hit 14.7%. This means that the average grocery bill has increased by £682 in a year.

With inflation in mind, it’s not surprising that a GfK report found that British consumer confidence is at a record low. 

Consumer confidence is also affecting the housing market, with many people reluctant to move or increase the amount of debt they have as interest rates rise. 

Figures from Nationwide show that house prices fell by 0.9% month-on-month in October. Many experts are predicting that house prices will fall in 2023. Savills predicts a fall of 10%.

In turn, this is affecting UK builders, as new orders fell for the first time since May 2020, when the first Covid-19 lockdown was in force. 

Europe

The situation in Europe is similar to the UK, with recession risk and high inflation affecting business confidence. 

According to Eurostat, inflation across the eurozone hit 10.6% in the 12 months to October. The energy crisis is the biggest factor pushing up the rate of inflation as prices were 41.5% higher than they were a year ago. There’s also significant variance between the countries that are part of the eurozone. France had the lowest rate of inflation at 7.1%, compared to 22.5% in Estonia. 

Unsurprisingly, concerns are having a knock-on effect on businesses. The S&P Global PMI for manufacturing in the eurozone fell to a 29-month low of 46.4. The reading shows the sector is contracting, which could indicate the region is in recession. 

As Europe’s largest economy, Germany is often used as an indicator of the region. German factory orders fell 4% month-on-month, partly driven by a fall in foreign orders.

This has affected business sentiment. A survey conducted by the Association of German Chambers of Commerce and Industry found that 82% of businesses see the price of energy and raw materials as a business risk. This is the highest since records began in 1985. 

US

Official statistics suggest that inflation in the US is stabilising. In the 12 months to October 2022, it was 7.7% after a slight dip when compared to the previous month.

Figures from the Bureau for Labor Statistics also indicate that businesses are feeling optimistic. Despite economists expecting a drop in the number of job openings, there was an increase of more than 400,000 in September. The findings suggest that businesses are continuing to invest and feel confident enough to expand their workforce. 

Revenue updates from some American companies also paint a positive picture.

Pharmaceutical firm Pfizer raised its 2022 earnings guidance and Covid-19 vaccine sale forecast. It now expects earnings per share to be between $6.40 and $6.50 (£6.20 to £6.30), compared to its previous forecast of $6.30 to $6.45 (£6.11 to £6.25). 

US company Uber also saw its shares rise after it beat revenue forecasts. Year-on-year, revenue increased by 72% to $8.3 billion (£8.05 billion) after lockdowns were lifted. 

On the flip side, Mark Zuckerberg, owner of Meta (formerly Facebook), admitted he had got it wrong and that things were worse than he had expected. The company is set to cut 11,000 jobs, the equivalent of 13% of its workforce.  

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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