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Client Update - 26th August 2022

The new leader of the Tory party and our new Prime Minister has some options to consider with regards to shielding families from further fuel bill rises. The scale of the issue is underlined by Keith Andersons statements this week that a rescue plan of a suitable scale to protect households from rising bills would cost in the region of £100bn over the next two years. Mr Anderson, CEO of Scottish Power, met with business secretary Kwasi Kwarteng to propose a plan to cap household energy bills at around £2,000 a year. Separately, EDF have suggested a proposal to freeze household bills for two years near the current £1,971 price cap – still double the typical bill from 18 months ago. This morning Ofgem announced the new price cap at £3,549. This subject is quite rightly gaining swift momentum as continental gas prices are 14 times their average of the past decade.


When former Prime Minister Theresa May legislated for an energy price cap in 2018, she pledged it would be to save consumers money. With a new price cap being announced on Friday – the suggested level would leave a pensioner reliant on a state pension of £185.15 per week, spending more than 40% of their income on fuel bills.


This week’s report from Citigroup has evidently heaped more pressure on the new Prime Minister to try and control the growing cost of living crisis as it forecast that UK inflation could hit 18% in 2023. This forecast is well above previous estimates from Bank of America and Goldman Sachs who predicted inflation peaking in January 2023 at between 14 to 15%.


Portfolio diversity remains key as we move through the third quarter and whilst it has been very encouraging to see better return from US equities over the last eight weeks, this recovery has taken a slight pause whilst we prepare for a new rhetoric from the global central bankers meeting in Jackson Hole, Wyoming, this weekend. Having been lauded two years ago for his swift action in March 2020 to flood the markets with liquidity to control a COVID led market collapse, US Federal Reserve (Fed) Chair Jerome Powell will be under pressure to answer questions on whether the Fed joined the rate rising cycle too late in the party. Powell is trying to curb high inflation, whilst at the same time not sparking a serious recession – a delicate balancing act indeed. Having embarked on the most aggressive rate rising campaign since 1981, Powell spoke earlier in the month about using data to possibly slow rate rises into the fourth quarter of the year. This rhetoric seems to have changed more recently as some market participants stared to price in a rate cut as early as the second quarter of 2023.


This time last year Powell told the assembled bankers (albeit via video link) that inflation was considered temporary and this view on “transitory” pressures subsequently led to the Fed continuing to expand its balance sheet much longer than was actually required, throwing fuel on the already rising inflationary pressures. They also started raising rates four months after the Bank of England. Whatever the news, the next US inflation print on 13th September will be very interesting after a fall in inflation in the US in July. The Fed has already blinked once in July to suggest rate rises may slow sooner than the market expects, we wait with great interest to see if this guidance continues or if they have changed their mind.


As always, should you have any questions, please do be in touch. Have a lovely weekend.

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