Market Update – February 2023

From the initial Covid-related inflation seeing double digits, to the war on Ukraine furthering matters and causing a knock on effect to food and energy prices, and the tightening of labour markets, conversations have greatly surrounded inflation and the rising cost of living over the last year.

These factors of course impacted asset markets which also saw volatility, with both global equities and fixed income producing negative returns in 2022. The British pound also saw a fall against other currencies, further adding to inflationary pressures in the UK. However, a new trade deal for Northern Ireland has been reported to have helped give more confidence into the pound.

However, 2023 has seen more of a positive outlook so far in comparison to the volatility of the previous year. Policy makers have addressed the energy and cost of living crises, with energy prices in Europe being seen to lower. Changes in China have also been witnessed as they relax their zero-Covid policy and their newly re-opened economy has been seen to react more positively following lockdown, which is being watched closely for the anticipated knock on effect to global economies.

Whilst there have been many short-term movements in the markets, we still urge clients to think of their long term investment horizons and financial goals instead of focusing on headlines. Experts still suggest that now is not a time to shy away from investments in comparison to the more cautious narrative of 2022.

With Q4’s ‘zero growth’ following the fall of  Q3, the UK has narrowly avoided recession so far and has instead been in a period of what experts term as ‘stagflation’. The rising cost of living and inflation is hoped to be addressed within some elements of the upcoming Spring Budget Statement, which is expected to include updates on pensions, military spending, taxation and childcare costs. Chancellor Jeremy Hunt will unveil this as his first full budget on Wednesday 15^th March, which we will be covering in more detail later this week.