Weekly Market Update- Week Ending 20/10/2023

Equity markets were generally lower this week following a reduction in risk appetite amongst investors as the uncertainty around the heartbreaking events in the Middle East increased.

On Wednesday, the Office for National Statistics released the latest inflation data for the UK. Having been expected to fall slightly over the month, inflation held steady at 6.7% on an annualised basis in September. An increase in fuel costs was largely to blame, offsetting the welcomed slowing price growth in other areas, such as food. Core inflation, which excludes more volatile items like energy and food, fell to 6.1% in the year to September, from 6.2% in August. Following the new data, Rishi Sunak’s target of reducing inflation to 5.3% by the year-end remains in the balance.

The UK’s rate of inflation remains the highest amongst our European counterparts, with Germany currently at 4.5%, France at 4.9%, and Italy at 5.3% in September. A large part of that difference is down to the UK’s energy price cap, which means bills only get adjusted on a quarterly basis, with the next drop due in October’s inflation data. Some forecast this, in isolation, could take around 1% off the headline figure.

The stickiness of inflation will likely cause a few headaches for the members of the Monetary Policy Committee at the Bank of England (BoE). Having raised interest rates 14 consecutive times, the committee narrowly chose to hold interest rates at the last meeting for the first time since December 2021. They meet next on the 2nd November to set interest rates. Expectations in the market currently point to rates being held at that meeting; however, last week the governor of the BoE, Andrew Bailey, described that decision as “tight.”

John Naylor, Chartered FCSI – Head of Investment Committee