Market Update

With over a week still to go, September has already been a busy month. Not only have we seen Liz Truss named as the new PM early in the month after a protracted Conservative party leadership contest, but we have also mourned the passing of our monarch Queen Elizabeth II and the crowning of King Charles III. We have also seen the Federal Reserve announce another sharp hike in interest rates of 0.75% on Wednesday 25th September, and the Bank of England followed suit today raising the rate by 0.5% to 2.25% – the highest level since 2008 and the global financial crisis. Both central banks have said further rises should be expected with the aim of further curbing inflation, even though it appears that both countries will end up suffering a recession.

Upon entering number 10, Liz Truss was quick to act on the main issue affecting the UK amidst the cost-of-living crisis: energy bills. A price guarantee has been announced, with the typical household expected to pay around £2,500 per year rather than be exposed to the much higher prices that were expected and would have caused millions of households to fall into fuel poverty. The policy is expected to have the additional benefit of curbing inflation, possibly by as much as 5%. Businesses are set to benefit from a similar scheme that will see their bills capped for a period of 6 months, though this is set to be reviewed.

In addition to acting to support households in the face of rising energy bills, the Chancellor has today announced the reversal of the national insurance tax hike, and a series of further fiscal easing measures is set to appear in his ‘tax-cutting mini-budget’. This represents a significant departure from the Conservative orthodoxy of the last 12 years, with Liz Truss being clear that she is prepared to reduce levies and cut regulation with the aim of stimulating economic growth. It also looks likely that the ban on fracking will be lifted, and planning regulations will be loosened to stimulate increased housebuilding.

Markets have stabilised in recent weeks and months following the very challenging first half of the year, but with so much uncertainty remaining it looks likely that the volatility will continue for the foreseeable future. The inflation outlook remains a key concern, and the consequent impact on monetary policy. With it looking likely that further rate rises will be needed to control inflation, there is little to suggest that there is an imminent market recovery just around the corner. Nonetheless, investors would do well to remember that they should focus on the long term rather than short term fluctuations.

If you have any questions arising from the above, please do not hesitate to get in touch with an Integrity365 Independent Financial Adviser today on 0117 450 1300.