Please see below today’s Daily Investment Bulletin from Brooks Macdonald, received this morning – 23/09/2022
What has happened
The downbeat market tone continued yesterday as additional central banks joined the hawkish drumbeat of the last week. The Bank of England raised rates by 50bps rather than the 75bps expected by the market but those voters that dissented from 50bps leant towards a larger rather than smaller move. Equities fell further as monetary policy filtered into recessionary fears and risks of global policy error.
Bank of England
On the face of it, the Bank of England’s 50bp rate rise, being smaller than the market was predicting, should have led to falling gilt yields rather than rising ones. 10 year yields rose by around 18bps as investors interpreted the voting split of the committee. 5 members favoured the 50bps hike but 3 voted for 75bps and only one for 25bps. Additionally all voting members agreed to reduce the size of the Bank’s balance sheet of gilts by £80bn over the coming year. The overall statement was considered hawkish by the markets that now believe the Bank will raise rates by 75bps at the next meeting given yesterday’s meeting was a close call and inflation pressures are yet to abate.
Mini-budget
One of the factors that the Bank of England will need to consider next month will be the inflationary impact of today’s mini-budget which has been widely leaked ahead of time. The new Growth Plan will include a reversal of the 1.25% National Insurance rise from earlier this year and corporation tax will remain at 19% rather than moving to 25% as previously planned. In addition to these announcements, stamp duty cuts were announced as well as a cut to the basic rate of income tax from the next tax year. These releases are on top of the energy measures already announced which introduce a £2,500 price cap for the average household’s bill.
What does Brooks Macdonald think
With the UK seeing both fiscal and monetary changes in the last 24 hours, much investor focus has been on these well telegraphed changes. The EU responded yesterday to the partial mobilisation announced by President Putin, saying that it would work to impose a price cap on Russian oil exports. European natural gas prices have fallen during September as markets price in economic growth fears as well as growing expectations that European governments are going to become more proactive in their energy market interventions.
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David Purcell
23rd September 2022