Our latest Investment & Economic update for August 2022 looks at how the global investment markets, economy, and commodities perform.
Markets
The FTSE 100 index of leading UK company shares closed at the end of July at 7,450.24 points, up 280.96 points or 3.92% during the month.
The index posted a solid finish to the month, climbing to a seven-week high as investor sentiment calmed. Equities did well in July despite continued concerns about rising price inflation in Europe.
In Europe, the investment & economic update showed better than expected economic growth of 0.7% in the second quarter helped buoy market confidence. At the same time, Eurozone inflation reached a new high of 8.9% last month.
Corporate earnings were, in the main, better than expected, too, despite continued concerns about the outlook for economic growth and inflation.
Gains on the London market in July followed a dire performance in June, which in turn helped to make some stock valuations and yields look more attractive to investors.
A strong performance from the banking and mining sectors, in particular, helped to drive the FTSE 100 back above 7,400 points for the first time since early June.
Business’s
The Investment & Economic update showed confidence fell in July, according to the latest business barometer survey from Lloyds Bank. The survey reported a three-point fall in confidence, to 25%, with rising price inflation and cost of living concerns driving negative sentiment.
The latest figures place UK business confidence levels below their long-term average of 28% for the first time since March 2021, when the economy was coming out of the second wave of Covid-19 infections.
The most significant concern for more than half of British businesses was price inflation, followed by worries about an economic slowdown and tightening labour markets.
Lloyds found that businesses still have an overall positive view of the economy, but this has decreased in recent months. Businesses’ assessment of their trading prospects remained reasonably resilient, with the net balance for trading prospects for July rising by three points to 37%.
A separate survey from the Office for National Statistics (ONS) found a rising number of businesses concerned about the increasing cost of energy and input costs. The ONS found that 26% of companies reported input price inflation as their most significant concern this month, with 20% saying their biggest concern was energy prices.
The Bank of England has warned that the UK economy will likely slow down this year and next, with consumers facing the impact of the highest price rises in 40 years, squeezing business profitability.
One in four businesses said they are planning to raise their prices further due to the rising energy cost.
Investment Market Update-Worried or Concerned?
The US
Across the pond in the United States, President Joe Biden is insisting that the American economy is not in recession, despite the technical definition of recession being recorded.
Official figures show the size of the US economy declined in two consecutive quarters. US GDP fell by 0.9% between April and June, following a 1.6% decline in the first quarter.
President Biden said the economic downturn was “no surprise” but pointed to record low unemployment, saying, “that doesn’t sound like a recession to me.”
Despite debate about the definition of a recession, President Biden’s landmark $369 billion climate change deal reached a surprise breakthrough.
The deal, reached by Senate Democrats, should take the US closer to its pledge of cutting greenhouse gas emissions in half by 2030. The money will be spent during the next decade to boost electric vehicles, jump-start renewable energy projects, including solar and wind power, and develop alternative energy sources like hydrogen.
Oil
The price of crude oil fell at the start of August following weaker manufacturing data in several countries, with investors waiting for the outcome of an OPEC meeting this week.
Benchmark Brent crude futures fell to $100.03 a barrel, earlier falling to a session low of $99.09 a barrel.
Latest Inflationary & Recession News (updated 4th August)
Interest rates have risen again, with the Bank of England warning about an economic recession.
The Bank’s Monetary Policy Committee voted to hike interest rates by 0.5% to 1.75% in response to soaring price inflation and forecast that the size of the UK economy will shrink in the final quarter of the year and continue its contraction until the end of next year.
Despite accepting the cost of living crisis is difficult, Bank of England governor Andrew Bailey explained that it would get “even worse” if they did not raise interest rates.
High price inflation is being driven by soaring energy bills, with Russia’s invasion of Ukraine the core catalyst of this cost pressure.
Should the Bank’s expected recession materialise, it would be the lengthiest for the UK economy since the global financial crisis in 2008. However, the recession is not likely to be as severe as that one.
Central Banks raise interest rates as a tool to combat inflation, because it increases borrowing costs and encourages people to save more and spend less.
In response to the latest rate hike, Chancellor Nadhim Zahawi said he was confident the government’s action meant it could overcome the economic challenges.
The Bank warned economic growth is already slowing, saying “The latest rise in gas prices has led to another significant deterioration in the outlook for the UK and the rest of Europe.”
Price inflation is expected to remain at “very elevated levels” for the remainder of the year, eventually returning to the Bank’s 2% target in 2023.
