Last week saw the Bank of England signal their intention to raise interest rates from February 2022 with mounting concerns regarding this “transitory” inflation.  Interest rates are currently at 0.1%, having been cut from 0.75% in February 2020 following the COVID-19 pandemic.  The emergence of this news resulted in lower demand for UK Government debt which saw the 10-year gilt yield rise to 0.88%, its highest level for over 3 months.  The Federal Reserve announced it would keep rates the same at 0.25% and will likely begin raising rates in 2022.  The Federal Open Market Committee also stated that it will start pulling back on the pace of its monthly bond repurchases from November and is expected to release a schedule at November’s meeting.

The Bank of England Monetary Policy Committee expect inflation to rise further as we head into the winter season. We are already seeing visual evidence of this from the fuel-driver shortage which has caused mass disruption to fuel supply levels.  Brexit is partly to blame for this, given numerous EU-born drivers fled back home to continental Europe, and the pandemic slowed down the ability to get new HGV drivers trained up.  The British transport department announced that 5,000 foreign HGV drivers would qualify for temporary visas up until Christmas, to ease the pressure on domestic supply chains, but it remains unclear whether this will be enough to fix the situation.  A further 5,500 visas have been made available for poultry workers to protect the food industry from facing similar issues.

The Furlough scheme, that ends on 30^th September, has also contributed to the lack of fuel supply with workers not rushing to get back into employment.  With the scheme entering its final week of operation, Rishi Sunak hopes this will rectify the supply of labour shortage we are currently experiencing.  On paper, the Furlough scheme has cost £70bn over the last 18 months but has supported over 9 million jobs and protected thousands of British businesses that would have otherwise struggled to remain in operation.

Elsewhere, last week saw the climax of the German elections which will see Angela Merkel end her 16-year term as Chancellor of Germany.  Expectations are that  Germany’s centre-left Social Democrats (SPD) will beat the Conservatives (CDU) in federal elections. However, should there be no clear majority, which is the most likely scenario, a coalition deal will have to be struck.

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The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 27^th September 2021.

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