Ear to the Ground
24 May 2024
There can be little doubt that the story of the week was the decision to call a UK general election for the 4th July. Between now and then we will hear from each party their stance regarding policy. Whilst inflation is yet to get back to target, it has retraced a long way. Economic growth is stronger than perhaps some may have thought, and the leading index of the top 100 UK companies has recently been at new, all-time highs. The latter will possibly be touched upon by the incumbent party, but does it actually matter. Looking at the performance under different leadership, it would suggest that the political party in control is actually irrelevant.
Source: FE Analytics, Lowes Investment Management
Whilst the political to and fro will keep the press busy, it is perhaps more fitting then to remain focussed on what is happening in the economy. UK inflation data released this week continued to show a transition back to the 2% target. Whilst it did not fall as much as some had forecast, the year on year figure for April came in at 2.3%. As expected, the largest downward pressure came from the fall in gas and electricity costs, due to the lowering of the Ofgem energy price cap. There was also a pleasing fall in food prices.
News wasn’t so positive with regard to retail sales, however, in a sign that perhaps higher for longer interest rates are starting to bite a little. Whilst a fall had been forecast, it was much larger than expected, at -2.3% versus -0.4% month on month. Year on year, retail sales were down 2.7% versus an expected fall of 0.2%. Whilst sales volumes were down across many sectors, sales were particularly weak within non-food items.
All of this will provide food for thought for the Bank of England. Whilst the general election will only be a month later, they have confirmed that they will still sit together in June to decide on monetary policy. With the consumer price index still showing a rate above the 2% target, this meeting may come a little early for them to implement a cut to the base rate, especially given their inflation target only mandate. But at the same time, they will be conscious of this latest retail sales weakness.
This article is for information purposes only and should not be construed as advice. We strongly suggest you seek independent financial advice prior to taking any course of action.
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