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Market Commentary - August 2021

Posted: 27th August 2021   |   Share

By Sarah Ryman

Sarah Ryman

‘Code red for humanity’ the words of UN secretary-general Antnio Guterres following the latest analysis of the science of global warming from the UN’s Intergovernmental Panel on Climate Change this month signed off by 234 scientists from over 60 countries. The paper released this month makes for sober reading against a backdrop of wildfires, US storms and tornadoes, severe flash floods and extreme temperatures in Europe and beyond. Whilst this is impacting the insurance market the bigger picture ignites fear and hopefully action.

UK

With infection rates dipping, the UK economy has grown 4.8% in the second quarter as consumers up their spending in celebration. This reading was a tad lower than the Bank of England had forecast (5%) and the production of goods and services between April and June is still 4.4% lower than the final quarter of 2019 but nonetheless it suggests that the economy continues to head in the right direction. Hospital leaders have however expressed concern this week as they are noting a 9.1% increase in hospitalisations in connection to Covid-19. Saffron Cordery, deputy chief executive of NHS Providers, said: “the increasing numbers are straining an NHS that is now running twice as fast in order to try and get down the waiting lists and tackle that backlog of care”. 

Employment is on the up with joblessness falling to 4.7% in the three months to June whilst average pay has increased 7.4% year on year.  Before everyone starts to try to negotiate 7% pay rises it is worth noting that this time last year many were furloughed and not being paid their full salaries so the reading is likely skewed.  The Office for National Statistics (ONS) have highlighted that the employment numbers are still lower than before the pandemic struck and there is now a risk of worker shortages threatening to hold back the UK’s economic recovery across a number of sectors.

UK inflation unexpectedly eased in July to 2% (annual rate) according to figures released by the ONS this month but is forecast to rise again over the coming months.

EUROPE

As candidates start to jostle to take over from Angela Merkel the leader of Germany’s Greens, Annalena Baerbock, has vowed to get tough on China and Russia and to reform Europe’s fiscal rules should her party gain power in September.  “The major lesson of the euro crisis was that austerity can end up suffocating an economy,” she said, which was why fiscal reform was needed.  “Germany and Europe need to become the engine room for innovation again.”  The election is by no means a foregone conclusion but her ratings suggest that she could play an important part in the coalition government.

US

A key legislative win for Joe Biden was confirmed this month, with the US Senate passing an additional $1 trillion package to invest in America’s infrastructure thanks to significant support from Republicans.  The House of Democrats was also supportive of the economic agenda which looks to invest in education, child care and green energy.  Lawmakers will put together the details later this year. 

According to officials at the US central bank, the Federal Reserve could start to slowly reduce monetary support by the end of this year thanks to the strength of the economic recovery.  The goal of 2% inflation remains on the horizon and a need to manage sensitively is critical.  Consumer price increases were 5.4% year on year for July which is a 13-year high but signs seem to suggest that it’s stabilising.  

Joe Biden is sticking to his plan to withdraw US troops from Afghanistan by the end of this month despite international pressure to allow more time for evacuations.   

 

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