Written by Millan Chauhan.
Last week, the Federal Reserve’s Chair Jay Powell delivered a hawkish stance stating that higher interest rates are needed to combat inflation. With annualised inflation having reached 8.5% in July 2022, the Fed now faces a balancing act between controlling inflation and causing an economic slowdown through aggressive hiking. Following Powell’s address, we saw US stocks tumble with the interest rate sensitive segments of the market the hardest hit. This also quickly spread to other geographical equity markets and stuttered the summer rally we have seen in equity markets. In the US, we also saw new single-family home sales fall to their lowest level in two years as higher mortgage rates make owning a home less affordable.
In the UK, we saw the energy regulator Ofgem announce an 80% increase in the cap of household energy bills to £3,549, effective from 1 October 2022, which has been caused by higher natural gas prices and a more restricted supply following Russia’s invasion on Ukraine. There have been further energy cap increases planned with the cap expected to rise beyond £5,300 by January 2023. We are also in the middle of the Conservative’s leadership contest which has been dominated by the respective cost-of-living stance of Liz Truss and Rishi Sunak. Liz Truss remains the favourite heading into the final week, with the outcome of the race set to be announced on 5th September.