The perfect storm

UK inflation accelerated to 9% the highest level since 1982. The unemployment rate fell to 3.7% the lowest since 1974, with job vacancies exceeding the number of jobless for the first time on record. However,  UK consumer confidence dropped to its lowest level in nearly 50 years.

Nuclear fusion breakthrough

This is the process by which the sun generates its energy, and which proponents hope may form part of the earth’s energy mix as the world moves towards net zero. It has proven difficult to reach the very high temperatures needed to create fusion reactions but scientists in the UK made a major breakthrough. The experiment at the Joint European Torus (JET) facility near Oxford, England, set a record of generating 59 megajoules of sustained fusion energy in a five-second period — well over double the previous amount. They succeeded in producing energy equivalent to 14kg of TNT, in an experiment that pushed plasma gases to about 150 million °C. 

US annual inflation

US annual inflation reached its highest level in 40 years in January, with the Consumer Price Index (CPI) up 7.5% from a year earlier. Month-on-month the CPI was up 0.6%, driven by electricity, food and rents. Rising prices have unsettled the pandemic recovery and worried central bankers keen to stop economies overheating.

Inflation is it persistent?

The US consumer price index (CPI) jumped 0.9% in October, well above consensus expectations of around 0.6%. The increase brought the year-over-year CPI increase to 6.2%, the highest since December 1990. The U.S. Producer Price Index (PPI) also came in up 8.6%, year-over-year.

Outside the U.S., the latest inflation data paint a similar picture. Eurozone PPI inflation is running at 16%. Japan’s PPI clocked in at 8%, yet another 40-year high, and China’s at 13.5%, a level last seen in the mid-1990s. South Korea’s import prices are rising at 35.8%, the fastest rate since 2008.

In short, current inflation increasingly appears neither transitory nor local.

Autumn Budget 2021

The chancellor focused on the post covid recovery and did not tinker much with pensions and investments.

The key measure that we already knew about was the 1.25% increase to National Insurance and Dividend rates which will come into effect in April 2022. Due to Government IT constraints it will initially be collected via NI and in April 2023 it will be a separate tax called the ‘health and social care Levy’.

This Levy will be applied if your pay is above the primary earnings threshold of £9,568. You are caught if you pay yourself dividends above £2,000, and if you are working above the State Pension age.

Therefore the dividend ordinary rate, upper rate and additional rate will increase to 8.75%, 33.75% and 39.35% respectively.

For business owners the employer NI will also rise 1.25% to 15.05%. As corporation tax will rise in April 2023 it would be prudent to talk to your accountant to bring forward profits if possible.

Key allowances have not changed:

  • High rate income tax band starts at £37,700 + £12,570 = £50,270
  • Capital Gains Tax annual exempt amount is £12,300
  • ISA annual subscription limit is maintained at £20,000 and JISAs £9,000

UK Inflation jumps

Inflation in the UK jumped to 3.2% in August from 2%, its highest level in more than nine years. The Office for National Statistics said that much of the spike was due to a substantial drop in restaurant and café prices last year and meaningful increases this year. The RPI which includes housing costs also jumped to 4.8% from 3.8%.

US – Infrastructure

The US Senate passed a roughly USD 1 trillion bipartisan infrastructure package, including about USD 550 billion in new spending. This is aimed at rebuilding traditional transportation infrastructure, improve access to broadband internet in rural areas and upgrade the electric grid and water systems. The Senate Democrats also approved a USD 3.5 trillion budget resolution.

China – regulation

China released a five-year blueprint calling for increased regulation affecting key parts of the economy. The document signalled Beijing’s intention to draft new laws covering national security, technology, monopolies and education. In the technology sector, new legislation will cover areas such as online finance, artificial intelligence, big data and cloud computing. 

ECB revises forward guidance

The European Central Bank (ECB) revised its forward guidance, indicating it would keep interest rates “at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at 2% over the medium term.” The ECB indicated that this process could involve a short period in which inflation goes moderately above this target. 

Inflation bubbling up

Consumer prices in America rose 5.4%, well above expectations. There are a small number of huge price rises, such as used cars, whereas the median price change is far lower.

In the UK CPI rose 2.5%. The Office for National Statistics cited increased prices for food, fuel, second-hand cars, clothing and footwear as key factors.