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Autumn Mini Budget Overview 2022

Archive for September, 2022

Autumn Mini Budget Overview 2022

Wednesday, September 28th, 2022

So what was it? A ‘fiscal event’? A Mini Budget? Or a full-blown Budget from a new Chancellor determined to take the UK in a very different direction from previous occupants of 11 Downing Street? As we will see in more detail below, reactions to the measures introduced by Kwasi Kwarteng on Friday September 23rd were sharply divided. 

Saturday morning’s papers, though, were quick to deliver their verdict. ‘At last! A True Tory Budget’ was the Mail’s headline. ‘We’ve got the courage to bet big on Britain,’ said the Express. The gambling theme was repeated in other papers. ‘Kwarteng gambles on biggest tax cuts in half a century’ was the Telegraph headline, while the Times went with ‘Truss’s great tax gamble’.

Irrespective of whether it was a ‘fiscal event’ or a full Budget, there was a lot to digest. We’ve detailed all the measures below, but first, let’s look at the background to Kwasi Kwarteng’s radical measures. 

The political background 

In July 2019, Boris Johnson replaced Theresa May as leader of the Conservative Party and Prime Minister. Liz Truss, MP for South West Norfolk and a supporter of Johnson in his leadership campaign, was appointed International Trade Secretary. Lower down the ministerial ladder, Kwasi Kwarteng, the MP for Spelthorne, was made a Minister of State at the Department for Business, Energy and Industrial Strategy. 

Five months later, Boris Johnson led the Conservatives to an 80-seat majority in the General Election on a promise to ‘Get Brexit Done’. His position appeared to be impregnable, but as we now know, he was forced to resign in the summer of 2022. The subsequent battle to replace him eventually came down to a straight fight between Liz Truss and former Chancellor – and early favourite – Rishi Sunak. Eventually, Truss won out, after endearing herself to Conservative members with a series of commitments to cut taxes. 

She became Prime Minister on September 6th and, with the Queen’s death just two days later. Many people had expected Sunak’s successor, Nadhim Zahawi, to continue as Chancellor, but instead, Liz Truss opted for Kwasi Kwarteng – widely regarded as being on the right of the Conservative Party and a staunch advocate of tax cuts. 

The death of the Queen, the national period of mourning and the approaching party conference season meant that the timetable for the fiscal event was shortened. Budget speeches are normally delivered on Wednesday lunchtime, after Prime Minister’s Questions. This time, Kwarteng delivered his package of measures on Friday morning, ahead of the Labour Party Conference in the last week of September and the Conservative Conference the following week. 

The economic background 

‘Neither a borrower nor a lender be.’ Many of you will know that famous quotation from Hamlet, but over the last two years, the UK Government has had little choice other than to be a borrower – and to be a borrower on an almost unprecedented scale.

A document published by the House of Commons library revealed that borrowing for 2020/21 was £167 billion higher than had been planned before the pandemic. Total spending to deal with coronavirus was put in the range of £310 billion to £410 billion. 

That document, however, was optimistic about the cost of servicing the extra borrowing. Published in March 2022, it said: “The cost of borrowing is currently very low [but the public finances are] vulnerable to an increase in these costs.”

This, of course, is exactly what has happened. The rising cost of energy and the global supply chain crisis has caused inflation on a scale not seen for years: in order to try to keep a lid on inflation, central banks have increased interest rates – which, in turn, have increased the cost of servicing the UK’s debt. 

And there was more debt to come. Within days of becoming PM, Liz Truss had committed to borrowing ‘up to £150 billion’ in order to cap a typical household’s energy bill at £2,500 a year until 2024. “Extraordinary times call for extraordinary measures,” she said. 

Meanwhile, the cost of servicing the equally extraordinary borrowing was rising. On September 22nd, the Bank of England raised interest rates by 0.5% to 2.25% and conceded that the ‘UK may already be in recession’. 

Rising rates meant that the Government borrowed £11.8 billion in August, almost twice as much as the Treasury forecasters had expected, as high inflation pushed interest payments to an August record. The inflation rate for August – at 9.9% – was down very slightly on July’s 10.1%, but there are plenty of forecasters ready to suggest that it could go much higher next year. Despite the action on energy bills, UK consumer confidence slipped into negative territory for the first time since 2020. 

The tax cuts – including the changes to stamp duty, cuts in income tax and the reversal of the rise in National Insurance – had been well trailed in advance. Supporters of the Chancellor were looking forward to the speech, while critics were already sharpening their knives, with the Institute for Fiscal Studies warning that “the tax cuts gamble will make [the UK’s] debt unsustainable”.

The speech 

Opening remarks

Kwasi Kwarteng began by acknowledging that the cost of energy is the issue that is “worrying British people the most”, and described the recent support for households and businesses as “one of the most significant interventions the British state has ever made”.

However, he stressed that high energy costs are not the only challenge confronting the UK, as growth is “not as high as it should be”. Mr Kwarteng therefore pledged “a new approach for a new era”, with lower taxes at the heart of his strategy.

Personal taxation and allowances


A cut in the basic rate of income tax, from 20% to 19%.


April 2023.


The planned reduction in the basic rate of income tax to 19p has been brought forward by one year. The Government says this means more than 31 million people will get £170 more per year on average, and works out to a tax cut of over £5 billion a year. Mr Kwarteng says this also makes the UK’s income tax system one of the most competitive in the world.

There will be a one-year transitional period for Relief at Source (RAS) pension schemes to allow people to continue to claim tax relief at 20%. That means that even though the income tax rate will be 19%, personal pension contributions will get 20% tax relief at source.



Top rate of income tax scrapped and single higher rate to be introduced.


April 2023.


The highest rate of income tax currently stands at 45% and is paid by anyone who earns more than £150,000 a year. But from April 2023, a single higher rate of income tax of 40% will be introduced, a move that Mr Kwarteng believes will simplify the tax system, make Britain more competitive, reward work and incentivise growth. 



Increase in dividend tax rates to be reversed.


April 2023.


The 1.25% increase in dividend tax rates is to be reversed, which will benefit 2.6 million dividend taxpayers with average savings of £345 in 2023-24. Additional rate taxpayers will also benefit from the scrapping of the additional rate of dividend tax. The Government believes the move will support entrepreneurs and investors, which can in turn drive economic growth.



Stamp duty cut.


September 23rd 2022.


The threshold at which Stamp Duty Land Tax (SDLT) must be paid in England and Northern Ireland has been doubled to £250,000 for all home purchases. 

The threshold at which first-time buyers are liable to pay SDLT, meanwhile, has increased from £300,000 to £425,000, and the value of the property on which first-time buyers can claim relief goes up from £500,000 to £625,000.

Mr Kwarteng says the measures take 200,000 people “out of paying stamp duty altogether” and will be a permanent change to the SDLT system.

Business investment and taxation


Corporation tax increase to be cancelled.




The Government had planned to increase corporation tax from 19% to 25% in April 2023, but this will no longer go ahead.

Mr Kwarteng says this will give the UK the lowest rate of corporation tax in the G20 and plough almost £19 billion a year back into the economy. This, he maintains, gives businesses more money to “reinvest, create jobs, increase wages or pay the dividends that support our pensions”.



Removing caps on bankers’ bonuses.




The cap on bonuses bankers are allowed to receive on top of their salaries, which was introduced by the European Union in 2014 after the global financial crisis, has been scrapped.

Under the previous system, bankers’ bonuses could not be higher than twice their annual salary without the agreement of shareholders. However, the Government believes that payment in bonuses “aligns the incentives of individuals with those of the bank”, which can in turn support economic growth.

Although the move is likely to prove controversial, Mr Kwarteng has insisted that the bonus cap “never capped total remuneration”, and instead pushed up the basic salaries of bankers or drove activity outside Europe.

In his statement, he argued that a strong UK economy depends on a strong financial services sector, with global banks creating jobs, paying taxes and investing “here in London, not Paris, not Frankfurt, not New York”.



New investment zones.


No dates confirmed.


The Government will liberalise planning rules in designated sites, releasing land and accelerating development. This will be accompanied by tax cuts, with enhanced tax relief for structures and buildings, 100% first year allowance on qualifying investments in plant and machinery, and no stamp duty payments on purchases of land and buildings for commercial or new residential development. 

Newly occupied business premises will be exempt from business rates, and if a company residing in the designated site hires a new employee to work in the tax site for at least 60% of the time, they will pay no National Insurance on the first £50,270 that they earn.



Simplifying IR35 rules.


April 2023.


Workers who provide services via an intermediary will be responsible for determining their employment status and paying the appropriate amount of National Insurance and tax.

The Government believes reforms to off-payroll working introduced in 2017 and 2021 have added “unnecessary complexity and cost for many businesses”. As a result, it hopes this latest change will “free up time and money for businesses that engage contractors that could be put towards other priorities.” 



Energy Bill Relief Scheme.


Immediately (announced earlier this month).


The Government will provide businesses and non-domestic energy users, including schools, hospitals and charities, with a discount on energy prices for six months.


National insurance


1.25% rise in National Insurance to be reversed.


November 6th 2022.


The Government is reducing Class 1 and Class 4 National Insurance contributions (NICs) by 1.25 percentage points from November and cancelling the introduction of the Health and Social Care Levy. This was set to be introduced in April 2023, and proved to be one of the most controversial policy announcements of Boris Johnson’s premiership, as the Government had pledged not to increase NI in its election manifesto. 

However, Liz Truss spent much of the recent leadership contest pledging to reverse this policy. The Government says the move enables almost 28 million people to keep an extra £330, on average, of their money next year.


The cost of living crisis


Energy Price Guarantee (EPG).


Immediately (announced earlier this month).


The Government has pledged to limit the unit price that consumers pay for gas and electricity, which means typical annual household bills will be £2,500 for the next two years. This is on top of the previously announced plan to give all households £400 towards their bills this winter.

As part of the Energy Price Guarantee, the Government will also cover environmental and social costs, as well as green levies, currently included in domestic energy bills, for two years.

Other measures

Alcohol duty


Planned duty increase for beer, cider, wine and spirits scrapped.


February 1st 2023.


Duty rates for beer, cider, wine and spirits will be frozen, which the Government believes will support businesses and help consumers with the cost of living.

An 18-month transitional measure for wine duty has also been announced, while draught relief will be extended to cover smaller kegs of 20 litres and above, which the Government says will help smaller breweries.


VAT-free Shopping


VAT-free shopping for overseas visitors.


No date confirmed.


A digital VAT-free shopping scheme, designed to boost the high street and create jobs in retail and tourism, will be introduced. Under the scheme, overseas visitors to the UK will be able to purchase items VAT-free. Although no date has yet been confirmed, Mr Kwarteng said he wants to see this put in place as soon as possible.


Universal Credit


Tighter rules on Universal Credit.


January 2023.


Universal Credit claimants who earn less than the equivalent of 15 hours a week at the National Living Wage will have to regularly meet with their work coach and actively take steps to increase their earnings, or risk having their benefits cut. The Government believes this will bring a further 120,000 people into the more intensive work search regime.


Industrial Action


Trade unions will have to put pay offers to members.


No date confirmed.


The Government will legislate to require trade unions to put pay offers to a member vote, so that strikes can only be called once negotiations have genuinely broken down. Legislation to ensure Minimum Service Levels can be put in place for transport services, so that strike action does not prevent people getting to and from work, will also be introduced. 


Infrastructure planning legislation 


New laws to simplify infrastructure planning rules.


No date confirmed.


Legislation to simplify the planning system for major infrastructure projects is to be put forward, as the Government believes the existing process is “too slow and fragmented”.

Mr Kwarteng said the time it takes to get consent for “nationally significant projects is getting slower, not quicker, while our international competitors forge ahead”.

He therefore wants to streamline assessments, appraisals, consultations and regulations, and review the Government’s business case process to speed up decision-making.

A list of infrastructure projects to be prioritised for acceleration has been published, covering sectors such as telecoms, energy and transport.


Reforms to the pension charge cap  


Pension Charge Cap no longer to apply to well-designed performance fees.


No date confirmed.


Draft regulations to remove well-designed performance fees from the occupational defined contribution pension charge cap will be brought forward.

The Government believes this will unlock pension fund investment into UK assets and innovative, high growth businesses, and ensure savers benefit from higher potential investment returns.


Reaction to the speech 

Reaction to the Chancellor’s speech was – as we have already seen – sharply divided. Many right-wing commentators could not contain their excitement, while those on the left derided it as a ‘Budget without numbers’ and one that would benefit ‘only the rich’. 

Writing in the Telegraph, Allister Heath described Kwarteng’s statement as “the best Budget I have ever heard a Chancellor deliver, by a massive margin”. He added that “hardcore, unapologetic liberal Toryism is back”, before praising the Chancellor for his commitment to “a flatter and simpler tax system”. 

Across the political divide, the Resolution Foundation accused Kwarteng of ‘blowing the Budget’ with half of his planned tax cuts going to ‘the richest 5%’. The £45 billion package, the Foundation said, would ‘raise interest rates and see an additional £411 billion of borrowing over five years’.

There was plenty of reaction from other think tanks and lobbying groups too. Unsurprisingly, the Taxpayers’ Alliance called the speech ‘the most tax-friendly Budget in recent memory’. Adding a cautionary note on excessive spending, Chief Executive John O’Connell wrote: “Taxpayers will be delighted with a Budget that eases the burden on their bottom lines and promises a growth game changer.” 

The Adam Smith Institute was similarly enthusiastic, saying that the Mini Budget was ‘the first step to getting the British economy back on track’. Head of Research Daniel Pryor said: “The planned increase in Corporation Tax would have hammered business, choked off investment and reduced workers’ wages. It’s also encouraging to see the Chancellor understands the importance of capital allowances.” 

Meanwhile, Director of the Institute for Economic Affairs Mark Littlewood commented: “This isn’t a trickle-down Budget, it’s a boost-up Budget. It’s refreshing to hear a Chancellor talk passionately about the importance of economic growth, rather than rattling off a string of state spending pledges.”

Not everyone, though, was reaching for the champagne. The Resolution Foundation added the note that growth in the short term ‘is in Putin’s hands rather than ours’.

Director of the Institute for Fiscal Studies Paul Johnson welcomed the cuts to stamp duty, but drew worrying parallels with Anthony Barber’s 1972 ‘dash for growth’ Budget, which ‘ended in disaster’ and was now ‘acknowledged as the worst of modern times’. 

The left-wing Momentum organisation’s take on the announcements was even simpler, and used just six words: “The Tories have declared class war.” 

What about the markets? There are, of course, many other factors acting on the FTSE-100 index of leading shares and the pound, but the pound went into free fall after the Chancellor’s statement, and by the following Monday morning, it had fallen to a record low against the dollar.


Kwasi Kwarteng didn’t waste time in his first major speech as Chancellor. He spoke for just 25 minutes, starting by dealing with the cost of energy and then proceeded to rattle off a string of tax cuts. 

“We won’t apologise,” he said in conclusion, as he dismissed the ‘tax and spend’ approach of previous governments, both Conservative and Labour. “Our entire focus is on making the UK more competitive in a fiercely competitive global economy.” 

Depending on your political standpoint, you may regard the statement as “the best Conservative Budget since 1986”, as Nigel Farage described it, or perhaps you feel nervous about the Chancellor’s decision to ‘gamble on the biggest tax cuts in half a century’.

What is certain is that the new PM and her Chancellor will not be changing course. As Mr Kwarteng sat down, your immediate reaction might have been to wonder what further tax cuts he would introduce in his March Budget. According to the Sunday papers, we may not have to wait even that long. ‘Truss plans to cut taxes again in the New Year’ was the Sunday Telegraph headline, and the Express was rather more forthright with ‘Chancellor: You ain’t seen nothing yet’.

Former Chancellor George Osborne always made the same point in his Budget speeches: whatever measures he took, the UK could easily be blown off course by factors beyond his control. Right now, that “fiercely competitive global economy” includes the conflict in Ukraine, increasing tensions between the US and China, energy prices that are far higher than they were a year ago, increasing base rates to counter inflation and seemingly endless supply chain problems. 

So the world – and the global economy – may look very different by the time Kwasi Kwarteng rises to present his March Budget. Rest assured though, that whatever happens in the next six months, we will – as always – keep you fully up to date with all the news, and how it impacts your savings, investments and long-term financial planning.

Will the cost of living crisis mean we all go back to cash?

Wednesday, September 21st, 2022

As the writer Mark Twain supposedly said, “Reports of my death are greatly exaggerated.” Could 2022 be the year that cash says the same thing?

Many clients reading this will remember the traditional method of budgeting used by their parents or grandparents: a pot for gas, a pot for electricity, one for food, another for clothes. Maybe even one for holidays.

Others will remember the ‘Christmas Club’ run by the local shop. The idea was simple, you put a little bit away each week and when Christmas came, the money was there.

Then, of course, people stopped getting paid in cash. Wages and salaries were transferred into your bank account. We started paying with cards, tapping our pin in and then going contactless. Then we started banking on our phones…

‘Cash is dying out,’ said the pundits. And the evidence was there for all to see.

Lloyds Bank recently reported that 90% of payments for eating out are now contactless with the number having risen significantly since the pandemic and the lifting of the limit on contactless payments. The proportion is similar at the supermarket checkout. Surely it was only a matter of time before we followed Sweden, a country that expects to be a cashless society by next year.

Except that cash is making a comeback. The Post Office recently reported that its branches handled a record £801m in cash withdrawals in August, up 8% on the previous month and 20% on the figure from July of last year. The total amount of cash deposited and withdrawn at over £3.3bn was the highest in the Post Office’s 360 year history; clear evidence that local businesses are being paid in cash.

The strains imposed by the cost of living crisis means that cash is anything but ‘dead’ with people turning to it to help with their budgeting.

The Post Office said: “We are seeing more and more people relying on cash as a tried and trusted way to manage a budget.”

You might question why? After all, there are plenty of apps on your phone that will allow you to create digital ‘pots’ for gas, electricity, clothes and even Christmas.

Perhaps the answer lies in another of your grandmother’s sayings: “If you can get credit it’s free. If you pay by cash it’s very expensive.”

There’s a clear psychological element to using cash: if we tap our card, we know it’s not free but it’s very definitely not the same as counting out the money and handing it over.

‘Look after the pennies and the pounds will take care of themselves’ as the old saying has it. Our gas and electricity bills may no longer be in pennies but plenty of us are going back to a budgeting method that has stood the test of time and that our grandmothers would approve of.



The outlook for the UK’s small businesses

Wednesday, September 21st, 2022

The new Prime Minister’s in-tray is overflowing. Inflation, the cost of living crisis, war in Ukraine, US/China tensions but buried under all that paperwork is, hopefully, another sheet of A4. One that’s absolutely vital to the country’s economic health, that will play a crucial part in our eventual economic recovery; the UK’s small businesses.

Of late, the small business glass,  at least as far as the headline writers have been concerned, has been resolutely half-empty.

At the beginning of last month, City AM announced that the UK’s small businesses were ‘scrapping hiring plans’ in the face of the current economic uncertainty. Small businesses were facing a ‘£50bn time bomb’ due to rising energy prices: up to a third of them could ‘go bust’ without access to finance and, of course, the Bank of England would inevitably raise interest rates again.

How important are small businesses to the UK economy? According to the Federation of Small Businesses website, there were 5.5m small businesses in the UK at the start of 2021, accounting for 60% of the employment and 50% of the turnover in the UK’s private sector. Employment in business with up to 49 staff was 12.9m, almost half of the total employment.

So the importance of small businesses to the UK economy cannot be overstated. That’s why their future is just as important as energy bills, inflation and foreign affairs. Germany has just introduced a €65bn (£56bn) package to ease the threat of soaring energy costs, including tax breaks for energy intensive businesses.

We can probably expect to see the same from the UK’s new Chancellor but he needs to remember that ‘energy intensive’ means the local pub and the B&B as much as it means heavy manufacturing.

We are privileged to number some outstanding small businesses among our clients. The owners and directors of those businesses are enterprising, hard-working and determined. They are also, despite the best efforts of the headline writers, cautiously optimistic. They can rest assured that we will do whatever we can to support them with good, consistent long-term financial planning.

Let us hope that the new Government plays its part as well, recognising the importance of small businesses to the UK economy and doing everything it can to help them lead the UK’s eventual recovery.

Teach your kids good financial habits as they head to uni

Wednesday, September 14th, 2022

You’ve worked hard to be able to afford to send your child to university, and now the time has come for them to fly the nest and strike out on their own.

So naturally, you’ll want them to start their adult life with good financial habits. Here are a few bits of wisdom you could share with your son or daughter before they head off to uni, so they can truly fulfil their potential and make the most of their university experience.

Stay on top of what’s coming in and out

It’s really important that students keep a close eye on how much money is going into their account, such as student loans and any parental support that you might be providing. At the same time, they need to closely monitor what’s going out, such as council tax payments, utility bills, rent, food and mobile phone bills.

Once your son or daughter knows how much is going in and out of their bank account, they need to know how to budget, so they don’t get through their money too quickly, turn to credit cards and slip into debt, or – heaven forbid – get in touch with you asking for more funds to tide them over.

If your child gets into the habit of keeping track of their income and outgoings, they’ll have a clear idea of what’s left to spend on other things that enhance the university experience, such as going out with friends, buying new gadgets and enjoying trips and holidays.

There are plenty of apps to help them with budgeting, such as HyperJar Kids, Rooster Money, GoHenry and Gimi, so that’s a good place to start, along with simply writing all their spending down on paper.

Budgeting is vital at the best of times, but as the cost of living crisis bites, it’s more important than ever that your child knows how much money they’ve got and where it’s going.

According to a recent study by The Student Room, half of young people starting university in September are worried about affording things, while just 15 per cent don’t believe they’re at all affected by the rising cost of living.

Significantly, half of those polled said they felt financial skills, such as budgeting, were the most important thing missing from the school curriculum. That certainly suggests young people want some guidance and tips on how to manage their money, so they might be particularly receptive to any help you can provide as they prepare to live independently for the first time.

Teach them to become savvy shoppers

As your son or daughter prepares to get used to managing on a limited budget, it would be well worth teaching them a few tips to save pounds and pennies where they can. For example, do they know where to find discount coupons or that it’s cheaper to buy own-brand products in supermarkets rather than expensive branded goods?

At the same time, it would be well worth making sure they’re aware of how the cost of just a few small purchases can quickly add up. For instance, if they spend £4 on a coffee every weekday morning, that adds up to £20 a week, or £80 a month. Encouraging them to look at their finances in this way could help them to look again at their spending habits and make changes, which would then free up cash that could be much better used or even put into savings.

Work pays

Many students get part-time work to help them make ends meet during term time, which helps them afford the lifestyle they want to enjoy at university, as well as gain new, transferable skills that can bolster their CVs.

By encouraging your son or daughter to do the same, you could help them have a much more fulfilling university experience, and at the same, they’d gain invaluable skills that would set them up well for their future career.

Encourage them to speak about money

Money can be something of a taboo subject, but this unwillingness to talk about an issue we all have to deal with helps no-one. After all, your son or daughter might find themselves in a flat or house share with other students, and they need to feel confident raising financial issues if and when it becomes necessary.

At the same time, they should feel it’s okay to ask for help if they find themselves in serious difficulties, without any sense of shame or embarrassment. Again, this could make a big difference later on, as taking away the taboo around money will encourage young people to seek out the help and advice they may need in the future, perhaps from a friend, relative or a professional financial adviser.

You want your son or daughter to flourish as they begin their adult lives in earnest by living away from home for the first time, and we understand that. But good financial management is critical to making that happen, so they can make the most of these very special years and also understand the responsibilities that come with adult life.


September Market Commentary

Wednesday, September 7th, 2022

August started with US Speaker Nancy Pelosi visiting Taiwan. We comment on China’s reaction below and we also describe the environmental and economic challenges facing the country.

With domestic crises brewing at home, some commentators have noted the convenience of an external crisis for the CCP (Chinese Communist Party). “The position of the Chinese government and people on Taiwan is consistent,” President Xi Jinping said in a phone call to Joe Biden. “Those who play with fire will perish by it.” Taiwan claimed that China’s military exercises were simulating a ‘full attack’ on the island and China/US relations do not appear likely to improve any time soon. “Hope is not a strategy,” one commentator warned.

The headlines in August continued to be dominated by possible energy shortages and inflation. ‘Winter is coming’ as they frequently warned on Game of Thrones and there were certainly plenty of grim predictions. Fortunately the month ended with some light (possibly) at the end of the tunnel, with gas prices falling as Germany appeared to be on course to meet its storage targets.

In the UK August was the last full month of Boris Johnson’s Premiership, now replaced by Liz Truss who beat Rishi Sunak in the final ballot of members.

The month ended with a crisis of ‘unimaginable proportions’ as the monsoon rains and melting glaciers brought widespread flooding to Pakistan. At the time of writing a third of the country Pakistan which is bigger than both France and Spain was estimated to be under water.

As always, let’s look at all the news in more detail…


Boris Johnson entered 10 Downing Street in July 2019 and in December of that year secured an 80 seat Commons majority on a promise to ‘get Brexit done’. No-one then would have forecast a global pandemic or Johnson leaving Downing Street just over three years later and Liz Truss arrives in No10 to face a raft of problems.

At its meeting on August 3rd, the Bank of England’s Monetary Policy Committee voted by 8-1 to raise interest rates by 0.5% to 1.75%, the biggest increase for 27 years. Worryingly it warned that the UK was likely to fall into recession this year and that inflation was now “set to go above 13%”. Governor Andrew Bailey acknowledged the impact this would have but said that if the Bank didn’t raise rates inflation would be “even worse.” The inflation figure for July was 10.1%, up from 9.4% in June and the highest rate for some 40 years, driving what the BBC described as “the fastest fall in real pay on record”. Despite this, most analysts agreed that the Bank of England will raise rates again, with some forecasters expecting inflation to hit 18% next year. With sanctions on Russia pushing trade with the country to a new low, figures showed that the UK’s trade deficit for the second quarter was £27.9bn; a new record.

The Office for National Statistics confirmed that the economy had contracted by 0.1% in Q2. Unsurprisingly UK consumer confidence dropped to a new low, so there’ll be plenty of problems for the new PM to address. Not least of these will be those facing the UK’s small businesses, which are reported to be ‘scrapping hiring plans’ in the face of economic uncertainty. To compound the problem many companies, especially in the hospitality sector, are saying they are likely to go out of business if the planned rises in energy costs go ahead. The month ended with Ofgem announcing an 80% rise in the energy cap.

Was there any light in the gloom? UK car production grew for the third consecutive month. The heatwave boosted UK retail and helped it to recover some of the ground lost earlier in the year and store closures are now running at their lowest level for seven years.

In the circumstances the UK’s FTSE-100 index of leading shares didn’t fare too badly. Like most of the markets we cover in the Bulletin worries about inflation and energy pushed it lower, but it was only down by 2%, closing the month at 7,284. The pound was firmly in ‘good news for exporters, bad news for holidaymakers’ territory, falling 5% against the dollar to end August trading at $1.1610.


We reported last month on the deal struck with Russia to allow grain ships to leave port, and the month started with the first ship leaving the southern port of Odesa. A week later four more ships carrying grain and sunflower oil left Ukrainian ports through the UN-brokered safe maritime corridor. The departures  from Odesa and Chornomorsk gave rise to hopes of export stability, with millions in countries that are dependent on Ukraine’s exports now facing famine conditions. Whether the deal will hold is anybody’s guess.

August brought the long-expected fightback from Ukraine, with explosions hitting Sevastopol in the Crimea and Ukraine beginning its push to take the area around Kherson, one of the first cities to fall to Russia. President Zelensky warned that the war was now entering a “nastier” phase and, as heavy fighting continued around Kherson, defence analyst Michael Clarke commented that the current phase of the war was “make or break for Ukraine’s credibility as an ally worth military backing from the West. Ukraine has to show it can do better than just lose the war slowly. This [the attack on Kherson] is a NATO-style offensive, so it is a clash of military thinking, as well as a clash of arms”. Against this background Boris Johnson visited Ukraine again for the last time as Prime Minister and the UK and Ukraine announced the start of talks over a digital trade agreement.


August was another month in Europe when the headlines were made by energy supplies or the potential lack of them. It got off to a rather morbid start with Svend-Joerk Sobolewski, the Chairman of Germany’s Cremation Consortium talking of an unprecedented energy crunch in the sector and warning that, “You can’t switch off death”. You suspect that Vladimir Putin may simply have said, “Watch me” and there were similar grim warnings all around Europe. The Swiss police chief openly discussed social unrest from winter fuel shortages. In Poland homeowners were queuing for coal in the middle of August.

If the shortages are as bad as feared the damage to Europe’s economies will be significant. By the end of the 2nd quarter, Germany was only reliant on Russian imports for about a quarter of its gas needs but that quarter is what powers the industry of the EU’s largest economy.

There was some respite at the end of the month, with City AM reporting that gas prices had ‘fallen sharply’ amid reports that Germany was on course to meet its gas storage targets for October but Russia has since shutdown the flow through the Nord Stream 1 pipeline into northern Germany indefinitely. 

There were problems of a different kind in Norway, where the country’s sovereign wealth fund (the state-owned investment fund built up thanks to the country’s oil surpluses) made a record loss of £144bn in the first half of the year. The fund is valued at over a trillion pounds and managed a negative return of 14.4% from January to June, with its technology holdings falling by 28%.

It was a rather more successful period for the French taxman who, using artificial intelligence developed by Google, raised an extra €10m (£8.56m) in revenue by spotting swimming pools which the owners had ‘forgotten’ to declare, thereby avoiding higher property taxes. Having been tested in nine French regions, the AI is unsurprisingly going to be rolled out across the whole country.

So were Europe’s leading stock markets as happy as a French tax collector in August or as gloomy as a German undertaker? Sadly it was the latter. With Germany’s DAX index down 5% to end the month at 12,835. The French market was down by the same percentage, closing at 6,125.


We often start the US section of the Bulletin with a report on the previous month’s jobs figure – a longstanding bellwether of the US economy. In July the US added 528,000 jobs, with the unemployment rate falling from 3.6% to 3.5%.

The report from the Labor Department was far stronger than had been expected, with recent data showing the economy continuing to shrink. The consensus forecast had been 250,000 causing some right-wing commentators to question whether the The Biden Administration was ‘massaging’ the figures ahead of the mid-term elections.

There was certainly some gloomy news around. Electric vehicle start-up Rivian laid off 6% of its 14,000 strong workforce. Figures for June showed the US housing market suffering its biggest monthly decline since the 1970s, and the largest single-month increase in homes listed for sale for 12 years. One estimate suggests that 1 in 6 US households are in arrears with their energy bills.

The month had begun with US Speaker Nancy Pelosi’s visit to Taiwan much to the annoyance of the authorities in Beijing who described it as “malicious provocation”. Pelosi offered her “unwavering commitment” to Taiwan’s democracy and by the middle of the month the US and Taiwan had announced formal trade negotiations. One aspect of Pelosi’s trip which went largely unreported was her meeting with the chairman of the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip maker and a company on which the US is heavily dependent. In a perfect world the US would like TSMC to establish a manufacturing base in the US – and stop making advanced chips for Chinese companies.

The month ended with reports that The Biden Administration was ready to ignore China’s live-fire exercises following Pelosi’s visit and ramp up arms sales to Taiwan. It will, apparently, ask Congress to approve an estimated $1.1bn (£940m) arms deal that will include 60 anti-ship missiles and 100 air-to-air missiles.

There was some good news for the US on inflation, which cooled more quickly than most experts had predicted thanks to the rise in interest rates. July’s figure was 8.5%, down from 9.1% in the previous month. That said, grocery inflation hit its highest level since 1979, while the ‘food at home’ index which covers cereals and bakery products was up 13.1% from July 2021.

We have commented below on the drought affecting China, and the US was similarly hit. Two-thirds of the country is now estimated to be affected by the drought, as water levels drop to unprecedented lows in the country’s lakes and reservoirs. California is one of the states affected, and its farmers have been forced to abandon tomato fields. The state accounts for 25% of the world’s ketchup production – meaning that the price of your tomato sauce could soon skyrocket.

Definitely not skyrocketing during August was Wall Street. Both the US indices we cover in the bulletin were down by 4%, with the Dow Jones ending August at 31,510 and the more broadly-based S&P 500 closing at 3,955.

Far East

As we have just mentioned, the month started with Nancy Pelosi’s visit to Taiwan and predictable anger from Chinese leaders but, in truth, the Chinese authorities had far more than just Nancy Pelosi to worry about in August.

We have detailed before the problems facing the Chinese property sector in general and Evergrande in particular and August had no sooner started than Evergrande was a billion dollars worse off. The company announced that one of its subsidiaries had been ordered to pay 7.3bn yuan ($1.08bn £930m) for failing to meet its debt obligations. This came two days after the company had outlined plans to restructure its debts; roundly criticised by many commentators for a lack of clarity.

Bloomberg reported that China’s top 100 developers saw new home sales fall almost 40% in July, so the outlook for the property sector is not going to improve any time soon. The malaise wasn’t, though, confined to the property sector. A string of new figures released in the middle of the month showed China’s economy continuing to struggle with the effects of Beijing’s ‘zero-Covid’ policy. Figures for factory output, business investment, consumer spending and youth employment were all disappointing, prompting China’s central bank to launch a 0.1% cut in interest rates to support the economy.

The problems look set to continue with China badly hit by drought in August. Combined with a heatwave, water levels have dropped significantly, forcing Toyota and Contemporary Amperex Technology, the world’s largest battery maker, to close their factories in Sichuan province. With a population of 80m Sichuan is a major manufacturing hub but is heavily reliant on hydropower.

To put some numbers on China’s water crisis, the country uses 10bn barrels of water a day which is roughly 700 times its daily oil consumption but decades of economic and population growth have pushed northern China’s water system to unsustainable levels. According to one report, at the end of 2020 per-capita water supply around the North China Plain was 50% below the UN’s definition of ‘acute water scarcity’. China has clearly acknowledged the problem for some time: in 2003 it launched a ‘South the North’ water transfer project, intended to use water from the Yangtze to replenish the north of the country. Officials in Sichuan have now deployed two giant ‘cloud-seeding’ drones in a bid to stimulate rainfall.

As you might expect with all the problems, China’s Shanghai Composite Index fell back in August, dropping 2% to end the month at 3,202. The Hong Kong index was down by 1% to 19,954 but the markets in Japan and South Korea went in the opposite direction. Both markets ended the month 1% higher, at 28,092 and 2,472 respectively.

Emerging Markets

As regular readers know, the Bulletin is written from the notes we compile through the relevant month. Since Russia invaded Ukraine we have far more notes in this section of the Bulletin, an indication, perhaps, of the increasing role on the world stage of countries like India.

Let’s start there, with news of a record trade deficit. India’s trade deficit for July was $31bn (£26.5bn) as high import prices – driven by global inflation – met falling demand for Indian exports as major economies in the West slowed. We have commented above on the impact of heatwaves and drought, and India could be particularly badly hit. The country is the world’s biggest exporter of rice and the prolonged drought has seen planting areas for the crop decrease by 13%.

Russia is clearly finding the money to continue the war in Ukraine but sanctions are hitting the country’s GDP, with one study quoted in City AM suggesting that the Russian economy was 4% smaller than a year ago. A new report from the Kyiv School of Economics predicted that the Russian economy will shrink by 9.5% for this year as a whole with up to 4m Russians set to lose their jobs. Ukrainian studies on the Russian economy should be taken with a pinch of salt and we should wait to see what the winter will bring.

With Belgium’s Energy Minister warning that Europe faces ‘five or ten awful winters’ without a cap on natural gas prices, Hungary decided to blink first with energy group MOL paying the necessary transit fees to re-start flows of Russian oil. Russia has, apparently, enjoyed a 38% boost to its energy earnings this year, with higher gas and oil prices pushing earnings to $337.5bn (£288bn).

Oil giant Saudi Aramco took one look at Russia’s earnings and simply said “hold my beer” as it reported profits of $48.4bn (£41.4bn) for the second quarter of 2022, a 90% year-on-year increase and, according to Bloomberg, the biggest quarterly profit for any company.

Despite the continuing war in Ukraine, droughts and inflation, August was a good month for the three emerging markets we cover in the Bulletin. the Indian stock market rose 3% to 59,537: Brazil’s market was up 6% to 109,523. And despite the comments about the Russian economy shrinking, the Moscow stock market was up 8% in August to close at 2,400.

And finally…

August, of course, was traditionally known as the ‘silly season.’ With politicians taking their summer break, journalists used to struggle to fill their column inches, hence the appearance of stories that normally wouldn’t come anywhere near the front pages.

For the ‘And finally…’ section of the Bulletin it is, of course, the silly season all year round. August 2022 wasn’t a vintage month, but it certainly held its own. In 2013, in the early stages of Bitcoin’s development, Newport IT engineer James Howells ‘mined’ 8,000 Bitcoins. They were stored on the hard drive of his computer. When Mr Howells upgraded his computer he forgot the Bitcoin and threw the old hard drive away. Fast forward nine years and the hard drive is resting in a Newport landfill and the Bitcoin are now worth £150m. Mr Howells is pleading with the local council to be allowed to dig up the landfill, saying he’ll give 10% of the proceeds to turn Newport into a cryptocurrency ‘hub.’ Sadly the council say excavating the landfill would pose an unacceptable ecological risk.

No such hi-tech nonsense for an Italian man who decided on a more traditional route to riches, digging a tunnel to burrow into a bank near the Vatican. Sadly the tunnel collapsed, and firefighters spent eight hours digging him out. The unnamed gentleman is now recovering in hospital with the local carabinieri waiting patiently…

Inevitably inflation has featured prominently in this month’s Bulletin and even this section can’t escape it. A store in the US beset by rising prices and even-faster-rising crime decided to lock up one product in plastic theft-prevention cases. Shoppers in New York said they had ‘never seen anything like it’ as they handed over their $3.99 (£3.40) in return for a tin of Spam.

Sadly, many people’s traditional method of consolation, chocolate, has also been hit by inflation. It is, of course, a sign of getting older that all chocolate bars seem to be half the size they were when you were a child. Now the Christmas tub of Quality Street has gone the same way, with Nestle reducing the size of the tubs from 650g to 600g. Cartons are also down in size from 240g to 220g meaning there’s even less chance of finding a green triangle…