City Analysts Lose The Plot Over Future Interest Rate Rises:
Last week inflation again took centre stage. It came as the Office for National Statistics released its analysis of price rises in May. While the headline figure of 2.1 per cent grabbed the attention, the detailed breakdown is far more revealing. Fuel prices are still adding to the increases. But, big rises in restaurant prices and the cost of clothes and shoes are the main drivers. This is consistent with an economy that just reopened its high streets and indoor hospitality. Interestingly, passenger transport by sea or inland waterway fell the most, perhaps reflecting a lack of demand for ferry tickets.
Elsewhere, the US Federal Reserve released its now much-vaunted dot plot. The investment industry sometimes gets criticised for making things too complex. In this instance, almost all global finance is fixated on where members of the Fed’s interest rate-setting committee have put their marks on a bit of paper. Analysts use these dots to estimate what the central bank will do years into the future. But they seemingly forget the plot gets changed up to four times a year.
Inflation Pushes Above 2% Target As Lockdown Lifts
Economic recovery as the UK emerges from lockdown has seen inflation push up to 2.1 per cent. This is the first time it has been above the Bank of England’s official target since 2019. The Bank of England kept interest rates on hold at its meeting last week. So, there is little expectation that it will begin raising interest rates anytime soon. However, the prospect of higher inflation saw UK gilts fall in value last week, pushing yields up.
The BoE maintains that any increase in inflation will be short-term in nature as spending resumes after Covid-imposed restrictions. The latest data from the Office for National Statistics supports that view. The biggest contributors to the recent rise in inflation come from areas like travel, particularly petrol and diesel. It’s to be expected as spending was artificially low this time last year due to lockdown and falling oil prices. Clothing sales also contributed to the recent rise in inflation as last year. Many retailers offered steep discounts to shift excess stock during the first lockdown.
Covid Cash Raising Causes IPO Boom
The coronavirus pandemic has seen a surge in the number of companies listing on global stock markets. The amount of money raised through IPOs in 2021 in the US has already exceeded the record for an entire year (which was set last year). New listings in the UK have lagged the US slightly. But, 2020 saw the largest number of IPOs in a decade, and 2021 is proving just as busy so far. Some companies have been turning to stock markets to help raise funds to cope with lockdown. However, many more have decided to take advantage of the huge demand from investors.
This is a sharp reversal of the trend in recent years, which saw a dwindling number of companies choosing to list in the UK. Last week international money transfer company Wise, formerly Transferwise, became the latest to confirm it will list in London. This follows several successful high profile technology IPOs, including The Hut Group last year and Darktrace earlier this year. Unusually the company is using a direct listing as it is not trying to raise new capital.
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