Client Update - 13th January 2023

The UK weather is back to its unpredictable best, but with concerns growing about domestic energy supply, it was very interesting to read this week that on Tuesday the UK produced a record-breaking amount of electricity from its wind turbines. At lunchtime the UK demand for electricity was 35 gigawatts, and the wind powered electricity being generated was equivalent to 21.6 gigawatts.

We have been focusing a lot in recent times on inflationary pressures and a key one is high energy prices. With the push to onshore energy supply to reduce reliance on external global providers (especially Russia) this was heartening news. With the impending drive for renewable energy set to cause a long term rise in inflation (cunningly described as greenflation) as the cost of building renewable energy plants remain high. Building a single 100-megawatt wind farm requires 30,000 tons of iron ore, 50,000 tons of concrete and 900 tons of recyclable plastics. According to the National Grid Electricity System data, wind sourced power has consistently made up around 50% of the UK’s electricity generation in the last week. That left 6% being produced by domestic coal and gas, with the remaining balance from nuclear, hydro, solar (very little I assume!), biomass and continental European imports. Whilst wind power certainly cannot be relied upon, it is good to know that there is some significant benefit to the current blustery conditions.

Back to the markets and the gradual rise in equities has continued this week with a softer economic landing from the central banks rate rising policy being expected rather than hoped for and more positive news on stimulus from the Chinese State as their economy continues to re-open post their zero Covid policy in 2020 / 2021. US inflation figures released yesterday continued to show the rate slowing down. US headline inflation fell by a further 0.1% to 6.5% year on year, the lowest level since October 2021. This remains a high figure for inflation by traditional levels, however it Is now some way below June 2022’s reading at 9.1%. Whilst this is indeed very good news, we doubt that it will deter the US Federal reserve from a further interest hike on the 1st February – although the markets now expect this to be as little as a 0.25% increase.

Stronger than expected profits were released by some key retailers this week, with Tesco and Sainsburys announcing a 7% rise in sales over the festive period. Interestingly Tesco’s Chief Executive Ken Murphy said that the company had planned for a busy period as research and consumer data had suggested that consumers would spend significant amounts as this was the first Christmas in several years not directly impacted by the Covid pandemic.

We continue to see little green shoots of recovery from a poor 2022 and whilst we remain mindful that shocks will come throughout the year, I am certainly feeling cheerier about the outlook for our clients’ portfolios in the year ahead. I trust that my email finds you well, do have a lovely weekend.