What a difference a week can make! Having been on holiday deep in the Atlantic, my missives have been somewhat delayed, but it seemed to me that much that was likely to change was already in the mix. While I knew that a new Prime Minister was bound to mean the composition of the Government would be different, leading to a probable change of direction, I could never have envisaged that we would be having a new Monarch that very same week.
The transition from the second Elizabethan Age may have little impact on investors, but it is clear that the changes at the top in Downing Street will introduce factors that will need to be taken into account when deciding where to place your hard earned savings. The support for hard pressed consumers through limiting the energy price cap may exert downward pressure on inflation in the short term, but it will have longer term consequences, thanks to higher borrowings. And the recent modest drop in the rise in the cost of living is neither here nor there in the broader scheme of things.
The market did actually get off to a good start at the beginning of the week, despite disappointing economic growth figures, but the rally was short lived. Shares rose strongly on Monday, but a confident start on Tuesday soon evaporated as worse than expected inflation figures came in from the United States. The effect on Wall Street was quite dynamic, so shares on this side of the Atlantic continued to drift lower as the week progressed.
Back home, unemployment is now at a 48 year low, but this is more due to labour shortages than rising demand. Indeed, with the economy flat-lining in the three months to the end of July, a recession may already be upon us. Little wonder, then, that the new Chancellor of the Exchequer’s instructions to the Treasury are to concentrate on stimulating growth.
With Prime Minister Truss clearly against any form of tax increase, the change in the Government’s approach is clear. Of course, if growth does start to pick up, interest rates may end up rising faster and further. We will get an indication of the Bank of England’s intentions soon enough. It could be another week, another change. Nothing is straightforward in the investment world.
