Client Weekly Update – Friday 23 September

Bank of England raise interest rates

The Bank of England yesterday raised interest rates for the seventh consecutive time to 2.25%, the highest since 2008, in an attempt to contain near double-digit inflation. 

A majority of the central bank’s nine-strong monetary policy committee (MPC) voted in favour of a 0.5 percentage point rise for the second consecutive meeting. The MPC defied market expectations of a bumper 0.75 percentage point increase.

Five members, including Andrew Bailey, the governor, Ben Broadbent, the deputy governor, and Huw Pill, the chief economist, voted for half a percentage point rise. Jonathan Haskel, Catherine Mann and Dave Ramsden voted in favour of a 0.75 percentage point rise, which would have been the highest in more than 30 years. 

The newest member of the MPC, Swati Dhingra, voted in favour of a 0.25 percentage point rise. The move comes before today’s tax-cutting mini-budget, where Kwasi Kwarteng, the chancellor, will announce a series of measures to reduce levies and cut regulations to stimulate growth.

The shift in fiscal policy, which includes an emergency price cap on energy bills for households and businesses, is expected to support growth and keep inflationary pressures elevated into next year.

The UK’s consumer price inflation fell back to 9.9 per cent in August from 10.1% on the back of falling oil prices, but rate-setters have tightened policy after signs that price rises have spread throughout the economy, raising the cost of food and services last month. 

The US Federal Reserve raised its benchmark rate yesterday by 0.75 percentage points for the third month in a row.

The MPC has raised borrowing costs at the fastest pace in 30 years to fight price growth, which is running at the highest level since the 1980s. The bulk of the UK’s inflation can be attributed to rising global oil and gas prices after Russia’s invasion of Ukraine. 

Unemployment has also fallen to a record low, helping to force up domestic prices and wages. Money markets are forecasting that the Bank will have to go much further in its tightening cycle, forcing rates to a peak of 4.5% next year to lessen the impact of looser fiscal policy. 

Economists expect that the emergency price cap for businesses and households will shorten the length of an energy-induced recession this winter.

Sir John Gieve suggested that the Bank and the government were pulling in different directions, with Kwarteng poised to announce more than £30 billion worth of tax cuts in the mini-budget as the government freezes corporation tax, reverses the rise in national insurance and cuts stamp duty.

Mini budget approved

Meanwhile in Jersey a raft of measures – including increased tax breaks, social security cuts and benefit hikes – designed to help Islanders tackle the state has approved the cost-of-living crisis. 

Last month, the Council of Ministers unveiled their emergency mini-budget as the Island faces the biggest rise in inflation for more than three decades as spiralling food, energy and housing costs put increased pressure on Islanders.

Tax thresholds will now increase by 12%, including child allowances, additional allowances and child care tax relief. This should mean that a single person on the marginal rate would be £520 better off next year, while a married couple with two children earning around £50,000 will take home around £1,243 more. 

Social security contributions will drop by 2% from October for the rest of the year, meaning that class 1 employee contributions will drop from 6% to 4% while class 2 contributions – for self-employed and unemployed Islanders – will drop from 12.5% to 10.5%.

It is estimated that this will benefit around 54,000 people.

And old-age pensions will increase by 7.7% in October in line with inflation, while a £600,000 scheme to provide free period products between now and the end of next year is also being planned.

The Cost of Living Temporary Scheme, which runs until the end of the year and provides £20 per person per month for households on income support, which equates to an extra £80 for two adults and two children, has been doubled with immediate effect, meaning a family of four will now have an additional £160.

There will also be an extra rise in income support in January to match September’s inflation rate while cold-weather payments will rise to £70 per month from October 2022 to March 2023 and will not be dependent on temperatures, as they currently are.

The mini-budget was approved by 46 votes to none.

Death rate increase

Jersey experienced its fourth-highest death rate in over 20 years in 2021. The Jersey Mortality report for last year revealed that 820 residents died. This was made up of 410 men and 410 women.

This was the fourth-highest number of recorded deaths in the Island since 2000. The average age at death for Jersey residents in 2021 was 79 years old – an increase of 12 years since 1960. 

Deaths, where Covid-19 was recorded as the underlying cause of death, accounted for 4% of all deaths in Jersey last year and 12% of all deaths in England and Wales.

Around a third of all deaths were of people below 75. The proportion of deaths attributed to dementia and Alzheimer’s disease was 10% in 2021.

Health Minister Karen Wilson said: ‘The report details the numbers of deaths occurring in the calendar year 2021, and their distribution by age, sex, and cause of death. ‘We know from the evidence that by adopting positive healthy living behaviours, Islanders will enjoy more opportunities to live longer and healthier lives.’

Queen’s coffin bearers – including Jersey teenager – ‘should be considered for honours list’

A Jersey teenager and his fellow soldiers who carried the Queen’s coffin during her State Funeral should be considered for a New Year Honour, according to an MP. 

Fletcher Cox (19) was among the eight soldiers from the 1st Battalion Grenadier Guards chosen to carry Her Majesty’s coffin during the historic event, which was viewed by billions of people on televisions across the globe.

The Bailiff, Sir Timothy Le Cocq – who attended the service in Westminster Abbey – has said Mr Cox did ‘amazingly well’ and that the Island was ‘entitled to be very proud of him’.

Tobias Ellwood, an MP who also chairs the Defence Select Committee, was quoted in The Times saying the bearers ‘did such an astonishing job under the spotlight that they do justify consideration for the New Year Honours List’. 

Former Armed Forces Minister Mark Francois said the behaviour of the guardsmen was ‘absolutely exemplary’ and that it would be ‘nice to think one way or another [that] their service will be properly recognised’.

Mr Cox was once a cadet in Grainville detachment of the Army Cadet Force and received the Lieutenant-Governor’s Award, which is the highest accolade a cadet can achieve.

Covid cases on the rise

The number of known active cases of Covid in Jersey has risen to 378, according to new figures. In a tweet, the government said: ‘There are currently 6 active cases in the hospital, 8 in care homes and 378 on the island.

‘Since Thursday 15 September, there have been 319 new cases and 270 people have recovered. ’The seven-day case rate per 100,000 people now stands at 290.35, a rise of 5.4% on the previous week. 

There have been 59,874 confirmed cases of Covid in Jersey since the pandemic began.

Following a review of Covid policy, the government recently confirmed that:

  • Guidance to take two LFTs per week has ended
  • Advice on when to leave isolation after a positive test has been simplified
  • Two negative LFTs 24 hours apart from day five are no longer being strongly recommended. Instead, Islanders who test positive are asked to stay at home for a minimum of five days and until they have been symptom-free for 48 hours
  • Guidance to take an LFT test before visiting a vulnerable person will remain in place
  • Staff working in ‘Safe Places’ – vulnerable settings such as care homes and the Hospital – will continue to have enhanced testing regimes, such as twice-weekly LFTs

The government has also confirmed that free PCR tests will remain available at the Airport drive-through for people who have Covid symptoms or have had a positive LFT test, and the self-booking system will remain unchanged.

Free LFT tests will also remain available for all Islanders to order online.

Mixed Markets

European markets are sharply lower today with shares in London off the most. The FTSE 100 is down 1.66% while Germany’s DAX is off 1.41% and France’s CAC 40 is lower by 1.25%.

The US stocks were as follows, by the end of yesterday: The Dow fell -107.12 points or -0.39% at 30076.67; The S&P fell -31.94 points or -0.84% at 3758.00; The Nasdaq fell -153.38 points or -1.37% at 11066.82.

Asian markets finished broadly lower today with shares in Hong Kong leading the region. The Hang Seng is down 1.18% while China’s Shanghai Composite is off 0.66% and Japan’s Nikkei 225 is lower by 0.58%.