“Investigation, Investigation, Investigation”
Following the investigation from the Met Police, the UK’s political climate has been reacting to the PM and Chancellor being issued with fixed penalty notices after breaching the very Covid restrictions that they legislated and urged the public to follow. This makes Boris Jonson the first sitting PM to have been found by the police to have broken the law and as such has faced numerous calls from all sides of the political spectrum to resign. The latest developments in the party-gate scandal also seem to confirm that Johnson broke the ministerial code, and the saga will no doubt aggravate the factional divide between cabinet and many Conservative Backbenchers (where a handful have already submitted letters of no confidence to the 1922 Committee).The Guardian has more:

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UK Inflation hits 7%

UK CPI has come in well above economists’ expectations, hitting 7% which represents a new three decade high as the conflict in Ukraine exacerbated supply shortages. Gas and electricity prices have risen 28.3% and 19.2% respectively over the course of the year, while the average price of petrol rose by 12.6 pence between February and March.

Core inflation – which excludes volatile items in the basket of goods such as food and energy – also rose rapidly to an annualised rate of 5.7%. Some of the primary drivers of this was clothing and footwear rising 9.8% while furniture, household equipment and maintenance soared 10.3%.

Today’s reading is the last inflation print before the BoE next reconvene to make their interest rate decision on 5th May, where the market has forecast a 20% chance of a 50bp hike (which has risen significantly from a 7% chance this morning). The BoE has previously forecast that they expect inflation to rise to around 8% in April, with the possibility of climbing further. At the BoE’s latest interest rate decision, their dovish approach caught the market by surprise as eight members of the committee voted to hike rates by 25bp, while Jon Cunliffe voted to keep rates unchanged.

Hence, all eyes will be on how today’s data effects the attitude of those such as Huw Pill and Andrew Bailey who maintain that rate rises should come in small incremental hikes in order to achieve a more balanced approach and avoid the narrative that the central bank either has their “foot-to-the-floor [with the accelerator] or “foot-to-the-floor with the brake”

Today’s data will also have added to the growing concerns over the rising cost of living, as real wages fall and inflation mounts (since average earnings of 5.4% (including bonuses) fail to keep up with 7% inflation). However, while consumers are adjusting to increases in the cost of the weekly shop, Tesco have reported a trebling of their pre-tax profits which rose to £2bn over the last year. The UK’s largest supermarket stated that a rise in sales (of 2.5%) and a reduction of costs owing to the pandemic helped push profits, however the chain caveated these profits as they said that rising inflation would impact consumer spending habits moving forward.

Some well-known supermarkets are also grappling with inflation in a rather different way. This has involved the introduction of a trillionaire’s shortbread…the latest version of a millionaire’s shortbread. Interestingly in October 2021, analysist at Morgan Stanley estimated that Elon Musk could become the world’s first trillionaire, with a current net worth of $275bn and counting.

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US Inflation
Over in the US, inflation also hit fresh four-decade highs of 8.5% with the rising cost of energy, rent and food being some of the primary drivers. This sent 10-year treasury yields to their highest level in three years (at 2.78%) after rising 12bp. Meanwhile, as the print increased the prospect of the Fed further tightening their monetary policy, by raising rates and reducing their balance sheet (set for a $95bn monthly reduction), the stock market took a hit with the Nasdaq down 2.18% while the Down Jones and S&P 500 fell 1.19% and 1.69%, respectively.

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​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​In Other News
The Reserve Bank of New Zealand have raised interest rates by 50bp, raising the base interest rate to 1.5% after the biggest hike in 22 years. This follows the RBNZ hiking rates by 0.25% pts on the day prior to the Russian invasion of Ukraine. The conflict has since exacerbated inflation in New Zealand (currently sitting at 5.9%) and the Bank has indicated that inflation will peak at 7% in H1 2022, with a further tightening of monetary policy due.

Across the Tasman Sea, the Reserve Bank of Australia is keeping rates at 0.1%, though they have signalled a hike in the coming months given that while inflation is comparatively low (at 3.5%), it is nonetheless above target.

Elsewhere, all eyes will be set on the Bank of Canada, where the general market consensus is that the reserve bank will hike rates by 50bp as inflation stands at 5.7%.

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Have a great day.

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