IFX Market Report: Thursday 20th July 2023

Yesterday saw the first piece of positive news for people needing to re-mortgage in the near future. Recent talks of interest rates potentially being hiked to 6.5 or 7% may have eased as inflation figures fell more than expected in June. After being stuck at 8.7% in April and May, consensus predicted a fall to 8.2% in June, however, figures released by the Office of National Statistics showed a drop to 7.9%. Although the number is still way off the BOE 2% target, every step down towards this is a positive for mortgage borrowers as it may put the BOE off hiking rates as much as expected.

According to a recent report, Britons are experiencing some of the worst population health outcomes in Europe. This is attributed to factors such as high rates of obesity, excessive alcohol consumption, and significant disparities in health conditions among different groups. The study highlights that the overall health of the population is suffering, partly due to an ageing demographic and a substantial increase in the demand for healthcare services, creating what is being termed a "health emergency." The prevalence of "premature, often preventable ill health" is having severe repercussions on both the economy and society as a whole. The economic impact is estimated to be substantial, with the cost to the economy reaching £15 billion in the 2022-2023 period. This financial burden arises from increased welfare costs and reduced tax revenues, which are stemmed from alarming health issues like obesity, excessive drinking, and health disparities, leading to a critical healthcare situation.

Despite previous GDP growth forecasts being somewhat unreliable, the most recent survey indicates that Britain's economy will continue to trail further behind the euro area in the upcoming year. Additionally, inflation is expected to remain persistently high, presenting a bleak economic outlook leading up to the next general election. Projections show that the gross domestic product is anticipated to expand by only 0.6% in 2024, significantly below the 1% growth expected in the euro area. Notably, the UK's figure has been revised down by 0.3 percentage points from the previous estimate. The current year is also expected to experience sluggish growth, with a meagre 0.2% increase in GDP

In the USA, in response to soaring inflation rates, policymakers consistently raised interest rates, leading forecasters to speculate about the possibility of an economic recession - a period of economic contraction rather than growth. The prevailing sentiment was that a recession was not a matter of "if" but rather "when." Some analysts predicted it might occur in 2022, while others thought it could likely happen in the first half of 2023, with certainty by the year's end. As of December, less than 25% of economists believed that the United States could avoid a recession. However, now that more than half of the current year has passed, there is no sign of a recession materializing. This is particularly evident in the job market, where the unemployment rate remains at 3.6 percent, close to the lowest rate seen in five decades.

The pound fell sharply after yesterday's inflation data. One of the key reasons investors invest into a currency is interest rate yield, so the inflation data gave indications that big hikes may not be necessary caused investors to pull out of the pound. By the afternoon GBPUSD had fallen from 1.3080 to 1.2880 but has settled around 1.2910. GBPEUR also fell from 1.1640 to around 1.1530. EURUSD currently trades around 1.1220

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