Individual

For people managing their own savings and investments.

Intermediary

For wealth managers and financial advisers managing savings and/or investments on behalf of someone else.

Institutional

For DC, DB and LGPS schemes, insurers, charities, universities, family offices and treasurers.

abrdn plc

For shareholders, careers and company information.

Change country site
Log in
  1. Home
  2. News and insights

This week

After last week’s revelation that supermarkets are starting to ration fruit and veg such as cucumbers and tomatoes due to labour shortages and the rising costs of heating greenhouses, the spiralling cost of pasta is now top of an overgrowing shopping list of worries for the consumer.

Thursday saw the BBC report that the cost of the Italian foodstuff has near doubled in just 2 years, putting a further Dente in consumer spending power. With food price inflation currently running at 16.7%, items such as pasta have been dragging up the index, rising from 50p for a 500g bag in during 2021, to 95p for the equivalent amount in 2023.

With food prices showing few signs of abating, especially pasta, a Penne for the thoughts of the Bank of England (BoE) then, who may be required to raise rates further to quell inflation. Luckily Governor, Andrew Bailey, gave his thoughts on inflation on Wednesday, commenting that:

"At this stage, I would caution against suggesting either that we are done with increasing bank rates, or that we will inevitably need to do more,"

"Some further increase in bank rates may turn out to be appropriate, but nothing is decided."

Following Bailey's remarks, markets trimmed bets on the likelihood of a 0.25% rate rise after the BoE's next Monetary Policy Committee meeting. They now see a 10% chance that the BoE will keep rates on hold. For reference, before Bailey spoke, markets saw a 4.5% chance of the bank keeping rates where they are. However, markets still see a roughly two thirds chance that rates will peak at 4.75% in the second half of this year. There was a muted reaction from financial markets, with sterling weakening against the euro slightly and two-year gilt yields dropping by around 10 basis points.

During what was a relatively quiet week for markets with only a few meaningful data points being released, the second half of the week saw investors await Federal Reserve chair Jerome Powell's semi-annual Congressional testimony next week. Hoping to get more of a handle of how the Fed is assessing the latest spate of above consensus inflation readings over the pasta month or so, Powell’s addresses are often seen as key in telegraphing the bank’s message to investors.

With the yield on the 10-year treasury now back up above 4% for the first time in 4 months, it seems there are no Trofie’s for guessing what those following the Fed are thinking. Market futures are now pricing in a 20% chance of a 0.5% hike to 5.0-5.25% and the possibility of a "terminal rate" (the highest before the bank starts cutting) as lofty as 5.5-5.75% in the US. Interestingly, the 6% terminal rate talk that seemed fanciful only a month ago are now being openly discussed by market commentators.


Next week

Although Spring may be just around the corner, the Met Office has confirmed a major SSW (Sudden Stratospheric Warming) event may be paying Britain a visit during the coming week. Similar to the event that caused the “Beast from the East” back in 2018, we should expect bitingly cold fronts and heavy snowfall as a movement in the Jet stream blocks high pressure coming in from Europe.

There will be no cooling off period for economists however, who will be examining the British Retail Consortium’s, retail sales numbers. Measuring the change in the value of same store sales on a yearly basis, the numbers should prove to be invaluable when assessing the strength of the High Street. With inflation showing little sign of abating in the near term, the numbers should make for interesting reading to gauge just how this is affecting consumer spending.

Whilst temperatures plunge, it would seem that inflation remains stubbornly hot across the western world. Higher than expected US jobs data and Consumer price index (CPI) numbers have now left global markets a little warm under the collar, with hopes of a slowing in rate policy rapidly evaporating. Jay Powell, the US Federal Reserve Chair, will give his views on the situation, testifying at a semi-annual monetary policy report before the Senate Banking Committee, in Washington DC on Tuesday evening. 

Come rain or shine, the first or second Friday of the month brings with it US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, it provides plenty for economists to get their teeth stuck into. Acting as a key metric for the US labour market, the data will be accompanied by Average Hourly Earnings, allowing us to gauge future inflation expectations as the more consumers earn, the more they tend to spend. This is a phenomenon that will be watched very closely by the US Federal Reserve, especially after last month’s bumper report, showing four times more Americans entered the labour market than anticipated.


The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used, you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 03 March 2023.