Investment market update: September 2023

Economies around the world continue to struggle with high inflation and weakening demand affecting GDP. Read on to discover some of the factors that may have affected your investment portfolio in September 2023.

When reviewing short-term market movements, remember to focus on your long-term investment goals.

UK

Official data shows the UK economy contracted by 0.5% in July. The Office for National Statistics (ONS) attributed the poor performance to strike action and poor weather.

However, there was some good GDP data. The ONS said the UK economy reached pre-pandemic levels earlier than thought in the final quarter of 2021. The revision is good news as economists previously believed the UK was lagging behind other countries.

Inflation is falling but remains above the Bank of England’s (BoE) 2% target. In the 12 months to August 2023, it was 6.7%.

Despite high inflation, the BoE’s Monetary Policy Committee voted to hold its base interest rate of 5.25%. The Bank’s governor, Andrew Bailey, said he believes inflation will fall “quite markedly” by the end of the year. However, he added, it would be premature to cut interest rates now.

Quarterly data from the central bank shows the public is dissatisfied with the strategy for controlling inflation. Public satisfaction was at its lowest since records began in 1999.

While interest rates didn’t rise in September, households are struggling.

The Resolution Foundation warned average working household incomes are on course to be 4% lower in 2024/25 in real terms when compared to 2019/20 thanks to high interest rates, steep tax rises, and a stagnant economy.

The number of mortgages in arrears also demonstrates the pressure some families are facing. According to the BoE, the number of mortgages in arrears hit the highest level in almost seven years.

Businesses are feeling the strain from rising interest rates too. Think tank Cebr predicts that 7,000 businesses will fail every quarter in 2024.

Statistics from the Insolvency Service indicate some businesses are already struggling to balance costs.

Company insolvencies jumped by almost a fifth in England and Wales in August when compared to a year earlier. However, it’s important to note that insolvencies were at a historic low during the pandemic as businesses benefited from government support.

Despite some negative statistics, the FTSE 100 recorded its best day of 2023 so far – the index gained 1.95% on 14 September.

Europe

GDP data for the eurozone was revised downwards. Statistics show GDP expanded by only 0.3% in the second quarter of 2023, which has led to concerns that the bloc could fall into a recession in the second half of the year.

Inflation in the eurozone fell to 5.2% in the 12 months to August. However, there’s a big difference between economies across the bloc. Hungary had the highest rate of inflation at 14.2%, while Spain and Belgium saw prices increase by 2.4% when compared to a year earlier.

In response, the European Central Bank raised its three key interest rates by 25 basis points.

PMI data indicated that business output is still contracting as new orders fell and firms were forced to pay more for raw materials and other costs. Germany and Austria were among the worst-performing nations in the eurozone.

As the largest economy in the eurozone, Germany is often used as a barometer for the economic area.

Unfortunately, signs suggest Germany’s economy could be faltering. The European Commission said it expects the country’s GDP to fall by 0.4% this year as energy price shocks due to the war in Ukraine hit the country hard.

Sentix’s index for the eurozone also suggests Germany’s performance is leading to pessimism among investors.

While many countries are struggling to manage soaring inflation, Turkey’s is among the highest. In the 12 months to September 2023, inflation was 61.5% and its base interest rate was 25% in September.

US

Inflation in the US is lower than in some other developed economies. However, at 3.7% in the 12 months to August 2023, the figure is higher than it was a month earlier.

Similar to countries in Europe, PMI data suggests business productivity flatlined in September. S&P Global said the service sector lost momentum in August, while manufacturers reported a drop in sales.

Towards the end of the month, there was a risk that the US government could partially shut down. A group of Republican members of the House of Representatives refused to compromise with their own party’s leadership.

Credit rating agency Moody’s warned a shutdown could threaten the US’s triple-A rating and cause market volatility.

It would follow Fitch downgrading the US government’s credit rating in August due to a “deterioration of standards”.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.