The past six months have positively flown by and we are now in the second half of 2023. This year was expected to be tricky. In the event, it has not proved as difficult as many feared. Not that we have fared that well in terms of equity market performance. The FTSE 100 Share Index rose just 8.4% during the first half of the year, trailing Spain’s IBEX 35 index, France’s CAC40, Germany’s DAX and the S&P500 in the United States – all which delivered rises of between 17% and 21.5%.
Our problem has been the persistence in the rise in the cost of living. While inflation has been a problem throughout much of the world, ours seems to be reluctant to moderate. Sainsbury’s assurance recently that food prices were now rising more slowly did little to raise spirits, particularly as the boss of the company that owns British Gas warned of likely further energy price rises this coming winter.
And, of course, with continuing higher than expected inflation comes monetary tightening. Pundits are freely forecasting interest rates north of 6%, with all the pain this is likely to bring to borrowers. The worry is that such a development will make our fragile economic recovery less easy to maintain. So far we seem to be holding up surprisingly well, but further rises in interest rates are unlikely to be greeted with much enthusiasm.
Still, if we think we have a problem with inflation, perhaps we should be glad we are not living in Turkey. There the cost of living is rising at 40% a year. Interest rates there were recently hiked from 8.5% to 15%, which makes the UK’s recent increase to 5% look modest. It put me in mind of the 1970s, when our inflation was running at over 20% and our interest rates were in the high teens. It culminated in the IMF having to bail us out.
But it’s the summer and, even if the weather is not always living up to expectations, Wimbledon is with us and our minds are likely to be focussed on upcoming holidays. Soon companies will be sharing with us their experiences of the first half year’s trading. Clearly we must hope there are no unpleasant surprises, though the summer has traditionally been a period to bury bad news. As the days shorten further, I have little doubt we will have plenty to get our teeth into as investors.
