As we enter the autumn season, it’s natural to feel a sense of apprehension given the gloomy summer we’ve had. Economic indicators point to ongoing challenges, such as falling house prices, a decline in housing transactions, and a weak manufacturing sector.
Insolvencies are also on the rise, as higher interest rates impact company finances. The Bank of England’s chief economist, Huw Pill, has acknowledged the potential damage caused by the continuous rate hikes.
Lessons to be learned: The International Monetary Fund, which has form for underestimating the resilience of the UK economy, has had to revise up its dire prognostications
These factors have contributed to a downturn in UK equities, with the FTSE 100 index reflecting the adage of selling in May. However, the optimal time to sell would have been in February, prior to the FTSE 100 reaching 8,000. It’s important to approach the coming months with caution considering these circumstances.
Yet, amid the prevailing sense of gloom, there are contrasting, positive developments. Despite sluggish growth, the job market in the UK remains robust, with notable increases in private sector wages and a rising demand for skilled workers.
While the housing market may be soft, prices have not crashed and are still higher than the beginning of 2022, making homes more affordable. The UK economy has defied pessimistic forecasts, as acknowledged by the International Monetary Fund, which has had to revise its projections. Additionally, the Office for National Statistics recently discovered that the economy is larger than previously reported.
Considering the healthy tax receipts and booming labor market, it’s evident that the UK economy is performing reasonably well, despite some underestimation by economists. Growth numbers are expected to be revised upwards in the coming months.
Looking ahead to the autumn, market sentiment will likely remain cautious until there’s a clear indication of global interest rates declining. Whether or not the Bank of England raises rates further is of less significance compared to the urgency of reducing rates as soon as possible.
Ultimately, the movement of central banks, led by the US Federal Reserve, will dictate the global trajectory. Lower inflation rates, estimated to be around 3%, will bring about a significant shift in perception, and we’ll adapt to a more agreeable economic environment.
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