top of page
Search
  • ChetwoodWM

Client Update - 23rd September 2022

Updated: Sep 26, 2022

The focus of markets this week returned to the central banks attempts to slow inflation, with the US Federal Reserve certainly being the more forceful one with a third consecutive 0.75% rate rise. With the Bank of England (BOE) deciding against a similar rate hike and being satisfied with “just” 0.5%, the UK Sterling weakened further against other currencies, most notably the US dollar. As I write this email, Sterling continues to fall lower as we digest the “mini” budget from Kwasi Kwarteng and the various tax cuts implemented, such as 1% off basic rate tax and the abolition of a higher 45% tax rate. Whilst introduced as a mini budget, some of the tax cuts and the repealing of IR35 off payroll working duties are anything but “mini”. The pitch is clear, that by increasing the attractiveness of the UK to business investment, we will actually boost growth and increase the tax take, but for now these changes will greatly increase the UK’s current account deficit. With a lower interest rate relative to the US and a huge debt burden, concerns about whether Brexit is actually done and various inflationary pressures outside of either the UK Government or the BOE’s control, Sterling does not seem particularly attractive on a global scale and some economists are predicting parity against the US Dollar. This is not helpful when foreign investors are needed to buy UK debt to finance our excess consumption, and this is less attractive if UK rate rises do not keep pace with the US.


Kwarteng remains defiant that these tax cuts will ultimately reduce the national debt burden by stimulating growth, and whilst this is potentially achievable, several market commentators disagree. A joint report by the Institute for Fiscal Studies and Citi, a global investment bank, suggests that levels of borrowing are set to be £60bn a year higher than the Office of Budget responsibility’s forecast in March.


UK assets are certainly attracting foreign investors looking for a bargain, as entrepreneur Xavier Niel this week bought a 2.5% stake in Vodafone, Suez started the process to buy back its British waste treatment business for $2.3bn and Schneider Electric agreed to buy one of the country’s oldest tech companies, Aveva for £9.5bn. Sovereign Wealth funds and Private Equity are circling UK waters right now and the falling Sterling will only encourage them more.


The BOE have made it clear that they are trying to reduce demand by increasing the cost of debt to fight inflation, at exactly the same time the UK Government are trying to boost business by cutting taxes and increasing our debt burden. It will be interesting to see how long these opposing forces can continue. Do have a good weekend.

22 views0 comments

Recent Posts

See All

Client Update - 24th May 2024

Finally, after months of speculation, Prime Minister Rishi Sunak has announced that this year’s general election will take place on the 4th of July. With the date now set, the pressing question on eve

Client Update - 17th May 2024

Last Friday brought encouraging news for the UK as data revealed that we have exited the technical recession we slipped into in the last quarter of 2023. First-quarter growth for 2024 reached 0.6%, su

Client Update - 10th May 2024

We have written for some time now about how falling inflation is being closely monitored by central banks who are desperate to start cutting interest rates before the economy sours. Key inflationary f

Comments


bottom of page