This week

With the sun out and temperatures rising, it felt like spring was truly in the air this week, and what better way to mark the occasion than with the Treasury’s Spring Statement- a precursor to the full Budget released later in the year.

It is with some irony that the word budget actually comes from the French bougette meaning ‘leather bag’ a derivate not only on the ballot box the budget is carried in but seemingly now the handle the Treasury is trying to get on soaring inflation. Wednesday morning saw news that domestic inflation had now risen more than expectations to 6.2%, a 30-year high, giving Chancellor Rishi Sunak’s speech later on in the day took on added significance. One of Sunak’s main levers to pull was to cut fuel duty by 5p a litre for a full 12 months, only the second time in 20 years such a move has been proposed. For those looking to install solar panels or insulation to their houses, the government will also scrap the 5% VAT placed on such measures, doubling their household support fund to £1bn.

It was certainly something of a mixed bag in terms of the economy however, with the Office for Budget Responsibility predicting 3.8% growth for the year, a sharp downgrade from its previous prediction of 6%. The economy is then forecast to grow by 1.8% in 2023, 2.1% in 2024, 1.8% in 2025 and 1.7% in 2026.

With global stock markets having made cautious gains throughout the beginning of the week, investors were in no mood to get carried away as Wednesday saw both Wall Street and US Treasuries fall on the back of hawkish comments from Federal Reserve policymakers. Two-year U.S. Treasury yields have risen sharply so far in March in response to persistent inflation and were set for their biggest monthly jump since 2004. Gold prices made their way higher, as investors looked to shield against soaring inflation and uncertainty caused by events in Ukraine, the yellow metal adding 1.3% to $1,946.44 an ounce.

The end of the week showed that the shoppers had been failing to bag some bargains, as UK retail sales showed a slight slowdown in consumer spending. Sales volumes fell by 0.3% on a monthly basis from January to February, although interestingly they were 3.7% above their pre-coronavirus February 2020 levels. Food sales volumes slumped by 0.2% with large falls in alcohol and tobacco, which may be linked to higher spending in pubs and restaurants as confidence increased in going out as worries over Omicron waned.

Next week

With the coming week transitioning us from March to April, incorporating April Fool’s Day on Friday, it won’t be just investors that will be kept on their toes.

Many historians believe that the origin of the day could date back to 1580s Europe when most of the continent switched from the Julian calendar to its Gregorian equivalent. In the Julian calendar, the new year began on 1 April along with the Spring Equinox and anyone who was slow to get the news or didn’t realise was mocked as an ‘April Fool’ for still celebrating the new year when it was now 3 months earlier.

It is with this in mind that we start the new week (and the new year for some) on the continent, as German wholesale price readings are announced. The data acts as a leading indicator of consumer inflation as when wholesalers charge more for goods and services, the higher costs are usually passed on to the consumer. With Germany being the largest economy in the Eurozone and the most dependant on Russian gas, the numbers should take on added significance as we see just how prices are reacting.

Back across the English Channel on domestic shores, the Governor of the Bank of England, Andrew Bailey, is due to speak about macroeconomics and financial stability at an online event hosted by Bruegel-the European think tank. With the Chancellor’s Budget having been announced the previous week, along with the highest inflation reading for 30 years, it will be interesting to see what those on Threadneedle Street make of it all. Bailey’s words will be heavily scrutinised by investors, who will be looking for any signs as to future monetary policy.

The end of the week brings with it the first Friday of the month and as always, US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move. The employment data itself 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, a vital piece of data as the Fed evaluates how to combat the record levels of inflation currently engulfing the US economy.

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 25 March 2022.