Market Update

UK inflation for November surprisingly dropped lower than expected, coming in at 10.7% from a 40 year high of over 11%, mainly due to a fall in fuel prices which were up 17.2% year on year in November which was a drop from the 22.2% increase we saw year on year in October. Inflation however is still worryingly high so rate hikes by the Bank of England are still needed to bring it under control but it has brought some optimism that we may be nearing the peak of inflationary figures.

On the topic of Interest Rates, The Federal Reserve in The U.S raised their rates yesterday, albeit by 50 basis points. This is the seventh consecutive hike from the central bank, although inflation has naturally dropped from the peak of 9.1% in June to 7.1% earlier this week, Fed Reserve Chairman Jerome Powell stated it would still take more consistent evidence for them to be confident that inflation would consistently drop to a more sustainable level. Before the hike last night, markets were pricing in for The U.S rate’s to peak just below 5% but are now focusing on rates climbing above 5% throughout the course of 2023. Starting with suggestions of a 25 basis point hike in February.

Staying with the theme of Interest Rates, both The Bank of England and European Central Bank are due to raise their interest rates by 50 basis points each. Both 50 basis point hikes are priced in by the markets, so as ever the commentary/minutes after the decisions will be key to the performance of both GBP & EUR in the short term. Last month, GBP initially weakened after the last hike as a picture of doom and gloom was painted by The Bank of England.

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