Daily Market Report - 21/06/2022
Consumers feel the squeeze, as grocery inflation hits 13-year high
UK consumers are facing the steepest increase in food bills in 13 years, as the cost of living crisis hits households. Grocery price inflation jumped to 8.3% over the four weeks to June 12 - up from 7% a month and is now at the highest level since April 2009 (new figures from data firm Kantar show).
This means annual grocery bills will jump by £380 this year, adding to the burden on people who also face surging energy bills and a record price for petrol and diesel at the pumps.
Equities markets continue to recover, from last week’s slump
The UK’s FTSE 100 index is 0.6% higher, up 40 points at 7161 points, rallying back after hitting a three-month low on Friday. But online grocer Ocado has tumbled over 5%, after tapping investors for £575m to fund its expansion plans. Ocado said it wanted the cash to “invest in innovation at a faster pace”.
Further Sterling underperformance likely
According to some economists, the Pound could endure a steady trend of decline in value against the Euro and other major peers over the coming 12 months.
The 25bp hike delivered by the Bank of England at last week’s MPC meeting was deemed an underwhelming response to acute inflation pressures. This careful approach to taming inflation has been negative for the UK currency, with investors saying that a hike of 50 or 75 basis points was needed to see Sterling improve across the board.
The Pound has fallen 2.20% against the Euro in 2022 already, with investors noting that much of the decline is linked to investor perceptions towards the Bank of England's interest rate policy and the sense it is too timid in the face of rising inflation.
Following last weeks’ meeting, the Bank has now signalled it is willing to potentially act more "forcefully" if inflation proves more persistent. The BOE raised their peak inflation forecast to 11% (year-on-year) by October, from 10% previously, showing that this inflationary pressure looks set to continue.