Stock Take

UK equities ended last week on a down note, after figures revealed the UK economy was flat in the third quarter.

Despite a recent pause, the Bank of England has aggressively increased interest rates for much of 2022 and 2023, with an eye on reducing inflation. These higher rates have helped slow already weak economic activity by making it more expensive for businesses and consumers to borrow – reducing spending and potentially investment.

While the figures are broadly poor, there was some more positive news in the detail. Figures for September showed economic activity for that month actually grew. While a growth of 0.2% wouldn’t normally be much to write home about, economists were expecting zero growth in the month.

Hetal Mehta, Head of Economic Research at St James’s Place, noted: “The UK economy showed zero growth in the third quarter due to overall weak domestic demand, although this was offset by a bump in net exports. September saw a modest monthly increase, but consumer-facing service industries are clearly facing ongoing challenges.”

One area which struggled over the quarter was consumer spending, which dropped 0.4%, adjusted for inflation, as people tightened their belts. With higher interest rates and persistently high inflation taking a toll on spending power, people mostly cut back on goods rather than services.

Those hoping for a rate cut, however, were likely disappointed to hear Andrew Bailey, Governor at the Bank of England, say: “It’s really too early to be talking about cutting rates… we are very clear, we are not talking about that.”

Hetal commented: “The Bank of England noted that we’re only halfway through the impact of its interest rate increases, suggesting a prolonged period of weak growth ahead.”

Azad Zangana, Senior European Economist and Strategist for Schroders, described the latest figures as ‘slightly better than economists had expected’, although not enough to change the outlook for monetary policy.

He added: “The Bank of England has warned that interest rates are likely to remain elevated for a prolonged period of time, as inflation has proven to be higher and stickier than expected. The economy is expected to contract in the final quarter of the year, potentially going into a shallow technical recession in early 2024.”

With consumers cutting spending as they face a tough economic environment, eyes will be increasingly turning on Jeremy Hunt, who is due to release his Autumn Statement next week. So far, noises from the Government have suggested we shouldn’t expect any big giveaways, though we won’t know for certain until the Budget is revealed.

From an investment point of view, it’s also important to remember that the FTSE 100 earns most of its income from outside the UK. Therefore, many of these companies can continue to grow, even if the British economy continues to struggle.

Turning to the Eurozone, the MSCI Europe excluding UK Index rose by a modest 0.2%. This was despite European Central Bank (ECB) President Christine Lagarde warning not to expect a drop in interest rates over the next couple of months. “Long enough has to be long enough,” she said.

Outside Europe, equity markets were generally positive last week. In the US, the S&P 500 and Nasdaq both rose again, the former by 1.3% and the latter by 2.4%. Several strong earnings reports from companies in the technology sector helped bolster growth of US equities.

The Japanese Nikkei 225 also enjoyed a strong week, gaining by 1.9% thanks to robust corporate earnings and the announcement of additional government stimulus to help fight inflation. The stimulus package is worth roughly $113 billion and includes additional subsidies to help lower utility bills alongside tax cuts. Chinese equities also concluded the week in positive territory, the Shanghai Composite rising by 0.3%, despite the country’s ongoing property issues.

Wealth Check

Worrying about paying the bills makes it harder to earn and manage your money. And feeling that you’re not on top of your finances can make you worry even more. That can have a direct impact on your mental health. It can be a vicious circle.

We’re living in an uncertain world. COVID-19 brought two years of reduced income and stress for many people. Hard on COVID’s heels came other stressful situations such as the Ukraine war, raging inflation and volatile stock markets.

Kate Whalley, Marketing Propositions Manager at St. James’s Place, comments: “Although inflation affects those on lower incomes most, anyone with high outgoings can be impacted severely. This applies across the wealth spectrum. If your outgoings are exceeding your income, your finances will be out of kilter – no matter how much you’re worth.”

The Office for National Statistics, or ONS, reported that more than one fifth of adults in the UK (11.5 million people) said they were borrowing more or using more credit facilities this year, just to keep up with rising prices.1

If worrying about money is affecting your mental health, you may find you’re less able to make any decisions about your finances, let alone make good decisions. So starting a conversation with a financial adviser can be a good first step to sorting out the situation.

Poor financial wellbeing comes from not feeling in control of your finances. Kate says the way to improve financial wellbeing is to talk to an expert. They can help with every aspect of your financial planning from creating a household budget to fit your family circumstances, to working out how you can keep saving. The more you know about managing your money, the more confident you feel that you’re back in control.

Conversations about money, especially conversations about money within families, can become very emotional. Having a financial adviser who’s one step removed from the situation and supportive can help you face the issues and move forward.

Starting to talk is the first step towards getting your mental health, as well as your finances, back on track.

Financial advice isn’t simply about numbers on a page. It can help you map out the future you want and significantly improve your financial wellbeing and mental health. We can help you make logical decisions and avoid costly mistakes in uncertain times.

Source1ONS, 22 February 2023.

In The Picture

Last week confirmed that the UK GDP growth was flat in the third quarter, despite facing a number of challenges.

The Last Word

“It is mindful of the legacy of service and devotion to this country set by my beloved mother, the late Queen, that I deliver this, the first King’s Speech in over 70 years.

King Charles delivers the first King’s Speech of his reign.

Schroders is a fund manager for St. James’s Place.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

© S&P Dow Jones LLC 2023; all rights reserved

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

SJP Approved 13/11/2023