Economic Review – June 2017

Our monthly economic review is intended to provide background to recent developments in investment markets as well as to give an indication of how some key issues could impact in the future.

Overview

BANK OF ENGLAND REINS IN BANK LENDING

In late June, Mark Carney, the Governor of the Bank of England (BoE), voiced his concerns over the extent of consumer borrowing in the UK. In their half-yearly ‘Financial Stability Report’, the Bank’s Financial Policy Committee (FPC) outlined that lenders had become complacent regarding their lending policies, stating that: “Lenders may be placing undue weight on the recent performance of loans in benign conditions.”

COUNTRY’S BUDGET DEFICIT FALLS IN MAY

The perennial deliberation around the UK’s budget deficit (the net difference between the country’s overall income and expenditure) continued in June as the Office for National Statistics (ONS) reported that it stood at £6.7bn in May – an improvement of £300 million compared with the same month last year.

MARKETS

As the first half of the year drew to a close, losses on the last day of June meant the FTSE 100 experienced its heaviest monthly loss since September 2015. The blue-chip index closed the month down 2.75% at 7,312.72 points. The index’s heavy weighting toward resources hindered progress in June. However, earlier in the month, the index hit a closing high of 7,527.33 the day after the election (9 June), while sterling fell.

SURVEY SHOWS UK BUSINESS CONFIDENCE REMAINS BULLISH

In its latest release, the Lloyds Bank ‘Business in Britain’ report indicates that the confidence index increased to 24%, double the figure recorded immediately following the UK’s Brexit referendum in June last year. The confidence index measures businesses’ expected sales and orders, and importantly, profits looking forward. It canvassed 1,500 UK companies in May, following the announcement of the general election.

UK INFLATION RISES TO 2.9%

In its latest data release, the ONS disclosed that the UK’s Consumer Prices Index (CPI) rose in May to 2.9% for the year, an increase from the previous level of 2.7%.
The wider Consumer Prices Index including owner occupiers’ housing costs (CPIH) which is not a national statistic, rose to 2.7% for the 12-month period to May 2017, its highest level seen since April 2012. This also represents a marginal increase from the previous figure of 2.6% in April 2017 and reinforces the continuing upward march of inflation.