September: schools return, autumn begins, and the weather begins to cool. But what have the investment markets been doing? Read on for our first monthly round-ups of investment markets, the economy, and the news that might affect your finances.
While the direct impact of the Covid-19 pandemic has lessened for many economies, businesses are now struggling with the indirect consequences, such as supply chain issues. From microchips to aluminium cans, firms around the world are facing challenges getting hold of the materials and goods they need.
Investment markets have largely recovered from the Covid-19 volatility, but global investors expect a market correction, according to a Deutsche Bank survey. Some 58% of investors said they expect a correction between 5% and 10% by the end of the year.
UK Economy & Investment Markets
Government Announcements
Government announcements could have an impact on both employees and employers, as well as investment markets. An increase in National Insurance contributions (NICs) from April 2022, which will become a separate health and social care levy from 2023, will increase outgoings for both individuals and businesses. NICs will increase by 1.25 percentage points.
For business owners and investors, the government’s announcement of dividend tax rates increasing by 1.25 percentage points from April 2022 could have an impact too.
Supply Chain Issues
Figures suggest that UK businesses are struggling with supply chain issues caused by the pandemic, Brexit, and other factors. The IHS Markit Purchasing Managers Index (PMI) monitoring business activity fell to 55. This figure is a six-month low, linked to supply chain challenges.
The challenges have affected a range of industries, including construction. “Sustained and severe” supply chain issues were blamed for the PMI falling from 58.7 in July to 55.2 in August. The British Retail Consortium (BRC) suggests UK shop price increases of 0.4% in August were also related to shortages in microchips and shipping problems. The organisation added that supply chains are on the edge of coping.
There has been wide reporting of food, energy, and fuel shortages in September, as we’re sure you will have seen. While steps have been taken to reduce their impact, the CBI warned that the labour crisis could last up to two years.
UK Businesses & Inflation
And then there is the number of businesses struggling to fill vacant roles. According to the Office of National Statistics, 13% of businesses said vacancies have become more difficult to fill when compared to last year in September. This compares to 9% that said the same thing in August. The hospitality industry in particular is facing challenges. Some 30% of accommodation and food service firms highlighted challenges finding workers.
It’s not just imports that are slowing. UK exports to the EU fell by around £900 million in July, a 65% drop. Rising exports outside of the bloc didn’t make up the shortfall.
Demand and challenges facing businesses mean inflation is above the 2% Bank of England target. Michael Saunders, a member of the bank’s Monetary Policy Committee, suggested higher rates of inflation could mean that interest rates will begin to rise next year, affecting both borrowers and savers across the UK.
In other news, Morrisons and Meggitt were both promoted to the FTSE 100. Their share prices surged after attractive takeover bids, promoting them to the index. However, if those takeover bids are successful, we will see both firms delisted.
Europe
Eurozone GDP figures show economies within the bloc are recovering stronger than initially thought. The GDP figure for April-June has been revised upwards from 2% to 2.2%.
Germany is also leading the way with an unexpected surge in factory orders for major goods, like ships. Official data from Destatis shows a 3.4% rise despite expectations of a fall.
US
Supply chain challenges are also having an impact in the US. While the manufacturing sector is still growing, the pace is slowing down. The PMI data from IHS Markit fell from 63.4 in July to 61.1 in August.
Another area that has disappointed, is job growth. Just 235,000 new jobs were created in the US in August, which is a significant slowdown when compared to a month earlier. That figure also falls short of expectations. The data would suggest the pandemic is continuing to have an impact on the labour market, with no jobs added to the leisure and hospitality sectors as concerns around the spread of the Delta variant remain.
Asia
Data from China shows that the pandemic continues to have an impact on activity and demand. The country’s service sector’s PMI data in August fell to 46.7 from 54.9 in July. The below-50 reading means the sector is contracting, possibly as a result of increased restrictions to curb the spread of the Delta variant.
However, export figures suggest the outlook in China isn’t glum. Exports increased by 25.6% in dollar terms in August, according to official data. Exports reached $294.3 billion, which helped to calm the worries of a slowdown.
Thanks for reading – we hope this roundup has been informative. We will continue to post such summaries on a monthly basis ongoing, and you’ll be able to find these on our website.
