This week

Rejigging its basket of goods on an annual basis, the Office for National Statistics (ONS) aims to gauge inflation by measuring the change in price of the items that are most representative of consumer spending. The week that was saw the latest comings and goings, with life in lockdown firmly represented.

It seems nearly 2 years of homeworking has shifted how we dressed and snacked during Covid lockdowns, with men’s suits and doughnuts deemed to be no longer relevant. Replacing them, sports bras, crop-tops and meat free sausages, accounting not only for a sharp fall in spending on formal clothes, but a "heightened awareness of fitness" gripping consumers. The lockdown tropes of vigorous cleaning and giving in to buying a puppy also make an appearance, with dog leads and antibacterial wipes making an unsurprising appearance.

With craft and hobby kits for adults crucially making the cut, many will indeed be wondering what exactly to make of the Bank of England’s (BoE) latest attempt to tackle price rises, increasing rates by another 0.25% to 0.75% on Thursday. Whilst economists expected a clean sweep of committee members to vote in favour of a hike, there was one dissenter in the form of Deputy Governor Jon Cunliffe, who voted to keep rates on hold, warning of a big hit to demand from higher commodity prices. In its outlook, the bank warned that inflation could reach 8% during April, almost 1% higher than it forecast last month, with a further caution that it could peak even higher later in the year. However, the bank did as much as it could to tone down its hawkish language however, commenting:

"The Committee judged that some further modest tightening might be appropriate in the coming months, but there were risks on both sides of that judgement depending on how medium-term prospects evolved,"

It was very much a tale of two central banks this week as the BoE’s opposite number, the US Federal Reserve, also reacted to spiralling inflation by hiking rates for the first time since 2018. The central bank kicked off its move to tighten monetary policy in the US with a 0.25% rise. However, in a key difference with those on Threadneedle Street, Fed policymakers seemed ready to fight inflation with much more aggression, with one policymaker, St. Louis Fed President James Bullard, voting in favour of an even more aggressive 0.5% rise to kick proceedings off.

Whilst market fundamentals caught the eye of investors, the main focus was still on events in Ukraine with sanction ravaged Russia looking increasingly likely to default on a crucial payment to its bond holders. Russia’s ongoing shelling of Ukraine kept commodity markets on their toes throughout the week too. Oil prices sprang back past the symbolic $100 mark towards the end of the week after U.S. President Joe Biden labelled Russian President Vladimir Putin a war criminal on Wednesday. Despite the ongoing situation in Ukraine, markets were buoyed by an announcement from Moscow that it was putting "colossal energy" into Ukraine peace talks, as both sides agreed to come to the table for negotiations.

Next week

In a quieter week than usual for economic data releases, our main focus will be on domestic shores as a host of statistics detailing the strength of the economy accompany the Chancellor’s Budget, set to be announced on Wednesday.

The foundations of the week will be set as early as Monday as Rightmove, the online estate agent, releases its House Price Index (HPI) data, detailing the change in the asking price of homes for sale on its website. Although this acts as the UK's earliest report on housing inflation, the data actually tends to produce a relatively mild impact due to asking prices and selling prices not always being correlated.

Rishi Sunak will make the trip from No.11 with his trusty ballot box on Wednesday, setting out his plans for tax changes, financial support as well as an update on the state of the economy. Against a backdrop of inflation at 5.5%, fiscal drag from frozen tax allowances, Mr. Sunak’s words will be scrutinised heavily by investors. The Chancellor might have thought he was coming out of the other side as the UK emerges from the pandemic, but a cocktail of geopolitical tensions and supply bottlenecks have caused inflation to become a real issue for the Treasury.

Rounding off the week, domestic retail sales data will be made public on Friday. Detailing the change in the total value of inflation-adjusted sales on the high street. Acting as the primary gauge of consumer spending, accounting for the majority of overall economic activity, it will be interesting to see if the recent spike in inflation has caused consumers to tighten their belts or if the savings accumulated during lockdown have cushioned the blow.

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 18 March 2022.