Market Loop - Inflation approaches double digits

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19th May 2022

Bite-sized business news from the UK and beyond

Good morning Inflation is at its highest level in 40 years, but how you experience it depends on things like how much you drive, eat out or travel. This guide puts together questions that estimate your personal rate.

Today's stories

Inflation approaches double digits
Demand for luxury watches continues to soar

ECONOMY
Inflation approaches double digits

What happened?
Inflation in the UK reached 9% in April, up from 7% the previous month and the highest since 1982. Prices are now rising more than twice as fast as wage growth and with the Bank of England predicting inflation will rise by 10.25% this winter, the squeeze on household income is set to get worse.

Let’s put this into context
40 years ago Margaret Thatcher was Prime Minister, unemployment was at its worst in 50 years and the UK’s telecoms, energy and water sectors were all held in public hands. A quick search online also suggests sliced bread cost around 40p at the time whilst the average price of a detached house was around £45k. A very different world to today.

Soaring energy bills were the biggest inflation driver
In April the price cap on energy bills rose by 54%. The impact of Russia's invasion of Ukraine means those bills are likely to jump again in October, when the regulator will review the price cap again.

An increase in prices charged by restaurants and cafes, as VAT returned to their pre-pandemic levels in April after government’s hospitality Covid measures ended, also added to the inflation jump last month.

Policymakers say there’s only so much they can do to control prices
The Bank of England and the government are under huge pressure to keep a lid on prices and support households. But both have said that the two main sources of inflation - global energy prices and pandemic-related supply chain issues – are out of their control.

The Bank says what it can do is use interest rates to increase the cost of borrowing and cool consumer demand – with the risk of pushing the economy into a recession. Analysts expect it to raise rates to 1.25% when it meets next month.

The government says it can’t protect people completely but are supporting with measures like reduced National Insurance for lower income households. But critics say more needs to be done to put cash in the pockets of the most vulnerable, for instance by reducing income tax and VAT.

When will prices start to drop?
That’s the big question. Economists forecast it won’t be until next year and that the target rate of 2% won’t be reached until 2024.

Other stories to keep you in the loop

Covid loans: Blunders in tackling fraud to cost UK taxpayers billions of pounds
World Bank pledges $12bn to support low-income countries hit by shortages
Burberry downplays impact of Chinese lockdowns despite shut stores
Shell boss faces investor rebellion over £13.5m pay package
‘Pharma Bro’ released from prison early
Britain’s biggest ever EuroMillions winners to go public

LUXURY
Demand for luxury watches continues to soar

What happened?
The UK’s largest luxury watch retailer, Watches of Switzerland, reported record results with a 40% increase in revenue to £1.2bn for the 12 months to May, proving that despite an uncertain economic outlook, the demand for bling remains strong.

Standing the test of time
Watches of Switzerland operates online and in stores across the UK and US, under brands such as, Mappin & Webb and Goldsmiths.

Over the past two years millions of households have built up billions in savings. This has created a whole new level of demand for Rolex, Omega and TAG Heuer watches as consumers looked for ways to spend their cash in lockdown.

The retailer’s strong online presence meant that it could pivot to website sales when its stores closed during the pandemic.

Luxury watches are a large and growing market
The company estimates that the UK, US and EU markets are worth $21bn with the UK alone growing by 8-10% a year.

Another attractive feature is that it’s mainly supply driven with demand far outstripping availability for key brands and models. This means prices for luxury watches tend to grow at above the rate of inflation.

The company plans to spend £300m - 340m to grow, with up to £200m of that to be spent on buying rivals in the US and Europe.

Takeaway
Whoever said the rise of the mobile phone would be the end of the watch was clearly wrong. Watches, or more precisely luxury watches, are more popular than ever.

Despite the growing concerns of a recession, Watches of Switzerland forecast that the year ahead will be even better and expect sales to reach between £1.45bn and £1.5bn.

Stat of the day

The average age of those starting a business in the UK last year wass 35 years old

Interesting links from around the web

Fool-proof travel tips from the guy who has literally visited every country on Earth
Why the era of cheap and plentiful may have come to an end
The job interviews that go too far

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Market Loop - Inflation approaches double digits

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