Market Loop - Inflation hits double digits again

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20th October 2022

Bite-sized business news from the UK and beyond

Good morning It’s been another dizzying 24 hours of UK politics: the Home Secretary resigned, there were reports of disorder in the House of Commons with MPs crying and being manhandled and much more.

Today's stories

Inflation hits double digits again
Goldman Sachs undergoes another rejig

ECONOMY
Inflation hits double digits again

What happened?
Yesterday official data showed that, as expected, UK inflation returned to 10.1% in September, the same level as July’s 40-year record and a slight increase from 9.9% in August.

Falling transport prices were offset rocketing grocery and energy bills
Food and drink prices rose 15%, the biggest annual increase since 1980, as the price of bread and cereals, meat, milk, cheese and eggs jumped. Electricity prices rose by 54% and gas prices by 96% in the year to September.

These rises were partially offset by continuing falls in the costs of petrol, with airline prices falling by more than usual for this time of year, and second-hand car prices also rising less steeply than the large increases seen last year.

Core consumer prices, which strip out volatile food and energy prices and gives an indication of how widespread inflation is, rose to 6.5% last month, more than expected by economists.

Many economies around the world are all experiencing rising prices
But the UK is the only major Western economy in which inflation has hit double digits. That’s because the UK imports much of its energy and is highly exposed to price rises in gas and oil, which have been made worse by the war in Ukraine.

Looking ahead: The latest inflation figures will add further pressure on:

The Bank of England to hike interest rates further from the current 2.25% to cool prices. Financial markets are anticipating another 1.0% rate increase in November despite fears it could tip the country into a recession by increasing the cost of borrowing.
The government to do more to help struggling households. September inflation numbers are typically used as a benchmark to uprate pension and benefit payments for the following April. But with public finances under pressure, there are concerns that increases may be less than 10%.

Other stories to keep you in the loop

UK banks brace for ‘windfall tax’ to help plug £40bn hole in public finances
Just Eat returns to profit despite warning of ‘challenging’ consumer backdrop
Amazon to launch UK insurance comparison site
Nestlé price rises drive sales growth to strongest in 14 years
Tesla shares down again following car delivery disappointment

BANKS
Goldman Sachs undergoes another rejig

What happened?
This week Goldman Sachs, one of the world’s most important financial institutions, announced it would restructure its business for the second time in four years.

How did we get here?
Goldman is known for its prestigious investment banking division where it earns fees advising companies on mergers and acquisitions. However revenue can be highly unpredictable and tumble in an economic downturn when companies have less appetite for deals.

Since 2016 Goldman CEO — and weekend DJ — David Solomon has been trying to grow the firm’s consumer banking efforts in the hopes of appealing to everyday people rather than big corporates. But that strategy is changing as the bank undergoes another rejig:

The loss-making, slow growing consumer banking arm – that offers bank accounts, loans and credit cards - will be absorbed across other divisions. Solomon said that “the concept of really being broad with a consumer footprint is not really playing to our strengths”.
The bank will go from four departments to three with the crown jewel investment banking arm combining with the trading unit. The goal is to get back to basics and bring the firm’s highly profitable trading and investment banking businesses under one roof.

Zoom out: Rivals like JPMorgan and Morgan Stanley have taken steps like combining their trading and investment banking units already, while Credit Suisse is approaching a deadline for its restructuring plan (although that’s being driven by more scandalous causes).

Stat of the day

A factory-sealed, first-edition iPhone sold at auction for $39k. Its original price was $599 in 2007 — or $852 today, adjusted for inflation

Interesting links from around the web

10 low-stress jobs that pay more than $100,000 per year and how to get them
18 healthy meals you can cook in 15 minutes or less
Deciding how to decide

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Market Loop - Inflation hits double digits again

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