Stock Take

Those Easter eggs are going to be even more of a treat this year. Last week, market researcher Kantar revealed that the soaring price of sweets and fizzy drinks contributed to a record rise in UK grocery prices, which increased 17.5% compared with March last year. Cocoa prices have increased 7% since February due to high demand.1

Fruit and vegetable prices also climbed due to availability issues. Tax office data showed the UK imported 266,273 tonnes of vegetables in January 2023 – the smallest amount for any January since 2010, when the population was around 7% smaller than it is now.

The news underscored the challenge facing central banks, which are still faced with punchy growth and inflation numbers, even if their attention has recently been diverted to woes in the banking sector.

Punchy is perhaps not the best description of the UK’s economic performance, but it’s not quite as bad as first thought. The Office for National Statistics released revised figures showing that UK GDP grew 0.1% in the last quarter of 2022, having previously said the economy registered no growth. The figures showed that high inflation took a smaller toll on the economy than previously thought, and the revision meant the UK avoided recession, for now.

“With around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year,” said Ruth Gregory of Capital Economics.

Equity markets were content to extend a relief rally last week, posting five straight days of gains as concerns about bank stability eased and hopes increased that central banks’ tightening cycle was near its end. Sentiment was boosted at the start of the week when it was confirmed the assets and loans of collapsed US lender Silicon Valley Bank (SVB) were being bought by rival First Citizens BancShares.

Appearing before the Treasury Committee, Andrew Bailey, Bank of England (BoE) governor, assured MPs the recent problems had not caused stress in the UK banking system, but that the BoE was on “heightened” alert for further turmoil. It was revealed the UK arm of SVB saw a third of its deposits – about £3bn – withdrawn in one day.

Midweek data showed US consumer confidence unexpectedly increased in March, as the availability of jobs and low unemployment more than offset the negative impact of the recent banking crisis. Although Americans expect inflation to remain elevated over the next year, the survey suggested that consumption would continue to grow moderately and keep the overall economy afloat.

In Asia, investors cheered a major revamp plan by internet giant Alibaba, which intends to split its $255 billion empire into six independent units. Alibaba’s shares surged 17% over the week. The news of the restructuring came shortly after the return of co-founder Jack Ma to mainland China. Ma had been spending time overseas and otherwise keeping a low profile since the Chinese government began a fierce crackdown on the tech sector in late 2020.

“Jack Ma’s reappearance and Alibaba’s overhaul, as well as Premier Li Qiang’s speech on Thursday about being committed to opening up and reforms, could all be indications of central government efforts to achieve healing and get back to business, with a view to achieving a strong economic rebound,” suggested Martin Hennecke, our Head of Asia Investment Advisory.

Optimism was dented by data showing China’s manufacturing activity expanded at a slower pace in March, and by news that the slump in Chinese industrial firms’ profits deepened in the first two months of 2023. However, services sector activity expanded at the fastest pace in nearly 12 years after the end of China’s zero-COVID policy in December.

On Friday came news that eurozone inflation saw its biggest drop on record in March, declining to 6.9% from 8.5% in February. However, core inflation – which strips out energy and food prices – accelerated to an all-time high of 7.5%, strengthening the case for further interest rate hikes by the European Central Bank.

Yet falls in French consumer spending and German retail sales – the eurozone’s biggest economies – pointed to a slowdown in consumers’ ability to spend, which is ultimately the main driver of price growth.

It was a similar story in the US, as the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, dipped to 5.0% from 5.3% the previous month. A slowdown in inflation could ease pressure the Fed feels to continue with its rate-hiking campaign. Money markets are now pricing a better-than-even chance the Fed will leave rates unchanged at its 2-3 May policy meeting.

The soothing inflation data brought some end-of-quarter cheer. As an action-packed first quarter drew to a close, global equities consolidated a 6% year-to-date gain, while government bonds rose 3-5% to register their best month since 2008. The bank turmoil has been a catalyst for tech and other growth sectors to reassume market leadership, reinforcing the importance of a diversified portfolio approach.


1 Battle for shoppers heats up as grocery price inflation hits new high, Kantar, 28/03/2023.

Wealth Check

There are many pros and cons to hiring contractors or employees, depending on your role and sector. Early-stage businesses often prefer to hire contractors, as it gives them more flexibility and is easier to administer. Freelance and contract workers are a lower-risk approach to filling skills gaps, with fewer commitments and liabilities; plus, you can flex or limit the time they work for you.

You don’t have to pay contractors sick pay, benefits or pensions, and they cover their own support costs, such as for IT, transport and other equipment. This can make them a more cost-effective option for a temporary project or role.

Another benefit is the ability to hire a contractor with specific expertise, which you might not be able to afford full time. It’s a great way to fill expensive skills gaps, which is often critical to growing a successful business.

Contractors don’t have the same rights as employees, though you must still provide a safe working environment and not discriminate against them. If you’re unhappy with a contractor’s work, it’s also easier to end their contract.

However, they often charge a higher hourly rate than employees because they cover their own costs, and they may have highly sought-after skills.

You also have less control over how and when they work, and they may have a way of working that doesn’t fit your business systems or culture. In contrast, you can train employees to do exactly what you need, instil them in your culture and discipline them if necessary.

There’s more administration associated with employees, including checking their legal right to work and creating an employment contract. The first time you do this there’s more to consider, but once you’re set up, each subsequent employee needs less input.

You’ll also need to meet all relevant local laws on tax and HR, including in areas such as minimum wage and holiday pay. Though employees’ hourly rates are generally lower, you’ll have to offer them a pension, sick pay, and possibly training and other benefits. You’ll have to pay employees’ and employers’ National Insurance. Plus, in the UK, you need to set up PAYE systems to pay them. All these things generate extra costs, which Helen Thomas, HR Director at The HR Dept, says can add up to an extra 15% to 30% of salary.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

In The Picture

With tax year ending this week, time is running out to make the most of your allowances.

The levels and bases of taxation, and reliefs from taxation, can change at anytime and are generally dependent on individual circumstances.

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The Last Word

“I think Finnish people want change. They want change and now I will start negotiations, open negotiations with all parties.”

Petteri Orpo, leader of the conservative National Coalition Party in Finland, celebrates winning Sunday’s general election.

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