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Today's Markets: Inflation nation

The latest markets and companies news
August 17, 2022
  • Inflation outpaces expectations
  • Housing market showing signs of slowdown
  • Elon Musk denies Man Utd bid 

Inflation is running rampant in the UK. The latest figures from the Office for National Statistics show that inflation hit 10.1 per cent in July, ahead of consensus forecasts of around 9.8 per cent and heading inexorably for what the Bank of England believes could be 13 per cent or more before the year is out, assuming energy bills go through the roof as predicted in October. The big question now is whether that 13 per cent figure proves to be optimistic or not. 

Read Hermione Taylor’s take on whether inflation is unstoppable now. 

For context, inflation was last this high on the eve of the Falklands war in 1982. But then interest rates were also unusually high at 14 per cent, which meant at least savers were able to keep pace. Predictably, sterling shifted higher on the news as currency traders anticipate tighter monetary policy in the coming months while UK government bonds sold off. Meanwhile, the House Price Index reading for June was also published this morning showing that stellar growth is slowing - average house prices grew by 1 per cent during June against 5.7 per cent a year earlier with the annual rate of growth down to 7.8 per cent from 12.8 per cent in May. Slowing demand is to blame and the number of transactions is also falling. See our article from June - Are we heading for a housing market downturn? 

Equity investors simply shrugged at the news with the FTSE100 holding on to its recent gains to trade flat at 9am and the FTSE250 up just 0.1 per cent. Across the Channel the DAX and CAC are similarly flat, following the lead of a quiet day on Wall Street yesterday as we grind through the summer lull. 

As we saw yesterday, wages are failing to keep pace with inflation and with more pain to come in the autumn for consumers there can surely be only one outcome, an even tighter reining in of consumer spending which could well tip the UK into recession. While the US claims to have avoided recession despite two quarters of negative GDP growth, the UK and Europe have avoided it for now but with gas prices surging in Europe this week as suppliers look to lock in their winter requirements and inflation only going one way for the next few months the fears of a long hard winter are growing. 

Meanwhile a little light relief from the US overnight where Elon Musk, who else, was forced to backtrack on a tweet he fired out earlier in the day indicating he was planning to buy Manchester United (US:MANU). Turns out it was another of Musk’s hilarious jokes. Whether it lightened the mood of United fans after their disastrous start to the football season is unlikely.