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This week

Driven by long waits for new cars and a reluctancy to use public transport in a post pandemic world, it seems that there’s never been a better time to sell a used automobile. Hatchbacks and estates in particular have been in high demand of late, with average prices rising more than 35% over the last year or so.

Perhaps the greatest beneficiary of this has been the humble Mini Cooper, which would have fetched £5,056 during February 2021, but now sells for almost double just 1 year later, costing £9,627 to drive off some forecourts. The amount the average motorist is now forced to budget for a new Mini is actually a fine example of why the government has been forced into releasing its own “mini-budget” as prices continue to rise at record levels.

Delivered by new Chancellor on Friday, Kwasi Kwarteng, the new shortened budget went full throttle “trussonomics” favouring a trickle down effect of wealth, allowing the government to hit their 2.5% growth target. Announcements included a removal on the cap on banker’s bonuses, a cut in the threshold for stamp duty, a reversal of National Insurance rises and the rabbit out the hat, basic rate of income tax to be cut to 19p, and top rate of income tax scrapped. It seems Kwarteng certainly made an impression on his debut, sending sterling plummeting to a 37 year low.

Consumer morale figures published on Friday underlined the challenge facing the government, with the mood amongst households falling to its lowest ebb since 1974.

Whilst those in the City of Westminster were busy looking for ways to help alleviate the strains of the cost of living crisis, their opposite numbers in the City of London were doing the same. Thursday saw the Bank of England, raise base rates by another 0.5% from 1.75% to 2.25%, vowing to "respond forcefully, as necessary" to quell rising prices. The news came as something as a surprise to some market followers, it having been well telegraphed that the BoE were also kicking the tyres of a potential 0.75% hike. This was felt in the currency markets, where sterling settled at a gain of 0.4% against the USD, having strengthened by up to 0.84% before the announcement.

In what was something of a theme for the week, The US Federal Reserve also attempted to slam the brakes on inflation, by increasing their own rates by another 0.75%, the third time in as many meetings. With borrowing rates now sitting at a range of 3.00%-3.25% in the US, Fed Chair, Jay Powell, kept to the hawkish tone that had characterised his speeches of late, by commenting that the bank will "keep at it until the job is done", even at the risk of unemployment rising and growth stalling.

One central bank that was firmly in “park” this week was the Bank Of Japan (BoJ), who acted as something as an anomaly amongst their peers, refusing to raise rates. The central bank actually kept all the key elements of its stance unchanged, with borrowing costs being kept at -0.1% and the target for the yield on the 10-year Japanese Government Bond (JGB) maintained at 0%.

Interestingly, it was reported afterwards that the BoJ has switched to manual, intervening in the foreign exchange market to buy yen for the first time since 1998, in an attempt to shore up its battered currency. Whilst the yen did initially rise 2% against the USD, analysts doubted whether the move would halt the yen's prolonged slide for long. The currency has more than a few miles on the clock it seems, depreciating nearly 20% during 2022 alone.

Next week

The last working week of September and indeed the quarter, should have investors and consumers looking drawing a line under what has been a very challenging three months for markets. With October now looming, many will be hoping the end of year can provide some solace from the almost relentless price rises we have seen during 2022.

One such area that has seen significant price rises is the property market, meaning that all eyes will be online estate agent Rightmove, who release their House Price Index numbers on Monday. Detailing the change in the asking price of homes for sale on its website, the data should indicate if the recent trend of house price growth cooling is still occurring. Although the data acts as the UK's earliest report on housing inflation, the data actually tends to produce a relatively mild impact due to the differences in asking prices and selling prices not always being correlated.

With the colder weather that October often brings, a different sort of climate will be on economist’s minds by Tuesday, as German business conditions are made public. The results of a survey encompassing about 9,000 businesses responses to rate the relative level of current business conditions and expectations for the next 6 months in Germany, the numbers tend to have a strong impact on markets.

The week should come to a conclusion with 2 key pieces of economic data, potentially setting the tone for the coming weeks both at home and abroad. First off, we will see domestic quarterly GDP figures released, although we won’t find out from these figures if the UK is in recession yet, the impact should be fairly pronounced. Whilst investors digest that information, across the pond, the US releases its Core PCE Price Index figures, a reportedly favoured piece of data by the Fed when weighing up future rate decisions.

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 23 September 2022.