The British Retail Consortium inflation index has risen to its highest level since records began in 2005 having hit 8.9%. This represented a 0.5 percentage point increase from February’s print and is indicative of how the UK economy is far from out of the woods when it comes to its fight against inflation. The print also underpins the rising cost of living for Britain’s 22 million households with the food price index hitting 15% as supply chain shortages on the continent led to fruit and veg shortages. The BRC also reiterated their view that food price inflation has not yet peaked though some inflationary pressures on homegrown food may ease as the UK enters growing season.
The rise in the British Retail Consortium inflation index follows the UK’s CPI print indicating that headline inflation unexpectedly rose from 10.1% in January to 10.4% in February.
This unexpected rise in inflation came against market forecasts that the rate would fall from double digits for the first time since August 2022, and has reiterated the challenge that Threadneedle Street faces in bringing inflation back to their 2% target rate.
Sticking with the topic of inflation, last night Governor Bailey maintained that the scale of those leaving the workforce after the pandemic has been a key driver of inflationary pressures as the workforce remains historically tight. Speaking at the London School of Economics, Bailey did however sate that inflationary pressures will ease as the cost in wholesale energy reduces. Here, Bailey said “it is primarily for this reason that we expect to see a sharp fall in inflation during the course of this year, starting probably in a couple of months or so from now”. As such, all eyes remain on the UK next inflation print in April ahead of the BoE rate decision on 11th May.
Last week, the IMF agreed to provide $15.6bn to Ukraine, marking the first time the fund had provided such a lifeline to a country at war. This comes after the IMF changed their term agreements which now allows them to provide facilities to countries subject to “exceptionally high uncertainty, involving exogenous shocks that are beyond the control of country authorities and the reach of their economic policies, and which generate larger than usual tail risks.”
The IMF stated that the facility aims “to support the Ukrainian authorities anchor policies that sustain fiscal, external, price and financial stability, and support the ongoing gradual economic recovery, while promoting long-term growth in the context of post-war reconstruction and Ukraine’s path to EU accession.” Following the full-scale invasion from Russia, Ukraine saw their economy contract some 30% over 2022 with forecasts for this year ranging from a 3% contraction to 1% expansion.
The IMF’s funding comes on top of $112bn spent by Congress on Ukraine over 2022. Given that Ukraine’s GDP was $130.9 in 2018, the US’ funding to Ukraine marks around 86% of the country’s GDP (based on 2018 levels). Presently, over 50% of the US’ spending on Ukraine has come in the form of military aid such as munitions, drones and missiles.
European equity markets closed higher yesterday as investors caught wind of cautious optimism in the wake of banking sector turmoil. For instance, the Stoxx 600 closed over 1% higher with every sector finishing in the blue – not least the banking sector which closed 1.4% higher. Deutsche Bank, for example closed over 6.2% higher on Monday’s close.
In the US, such sentiments set a similar tone for banking stocks with the S&P 500 bank index closing 3% up on the day, having lost more than 22% on a month-to-date basis last Friday. More generally, the S&P 500 gained 0.16%, while the Dow Jones climbed 0.6%. Meanwhile the teach heavy Nasdaq lost just under half-a-percent.
As risk sentiment eased, gold lost 1.2% though it remains 6.36% up on the month having risen above $2,000 an ounce for the first time in a year.
Yesterday, the IFO Business Climate Indicator for Germany hit its highest level in over a year, beating market expectations and rising for the fifth consecutive month. March’s level came in a 93.3pts, as supply chain issues eased and wholesale energy prices fell. Such conditions have meant that the prospect of a recession in Germany in Q1 2023 is now less likely, though banking turmoil continues to dominate headlines. Indeed, looking at the Eurozone more generally, S&P Global ratings stated that there was “elevated risk of a mild recession down the road” as inflation – at 8.5% over February – remains well above the ECB’s target of 2%.
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