Capital markets and war
Last week saw the world most certainly taken a turn for the worse from a humanitarian point of view. Pictures of the atrocities committed in the Middle East, and indeed the timing, drew immediate parallels with the Yom Kippur War of October 1973, and the oil crisis that followed.
At this point, it is important to note that the movements of capital markets – and short-term impacts on investors – are of trivial importance compared to the loss of life and the immense human suffering the terrorists of Hamas have brought upon the civilian population of the region of Israel and Gaza. Commenting on the potential economic impacts triggered by Hamas’ actions should only be a small side story to the events of the week. But this is what The Cambridge Weekly provides in its information niche to private
investors, and this is also why we leave political context comment to those media outlets whose main purpose it is.
Bank of England winning against inflation expectations
Britain’s inflation outlook was back in the spotlight (if it ever left) last week. The International Monetary Fund (IMF) published a gloomy report in which it forecasts high UK inflation into next year. It thinks prices will jump 7.7% year-on-year in 2023, and 3.7% in 2024. This is the highest predicted inflation rate of any G7 country, and it could mean another interest rate rise from the Bank of England (BoE), with UK rates staying well above peers to the end of this decade. This is despite the IMF downgrading Britain’s growth forecast to just 0.6% in 2024 – the lowest of any developed nation. The UK government tried to paint the IMF’s predictions as overly pessimistic, with the Treasury arguing recent growth revisions had not been accounted for in its report. Reacting to the forecast last Tuesday, Chancellor Jeremy Hunt pointed to a higher long-term growth rate in the UK than in Europe’s largest economies, and reiterated his stance that “we need to deal with inflation and do more to unlock growth”. The IMF naturally rejected these suggestions, arguing that its growth forecasts were above the BoE’s and factored in all available information.