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Supply chain bottlenecks alarm UK consumers

Key takeaways

In a week that saw UK consumers racing to the petrol pumps, central banks prepared themselves (and financial markets) for the gradual reduction of economic support.

  • Dominating UK media headlines last week, a shortage of heavy goods vehicle drivers has led to a lack of fuel in petrol stations in many regions. This driver shortfall is due to combination of factors (including the COVID-19 pandemic and changes caused by Brexit), but represents another instance of supply chain bottlenecks leading to issues in delivering goods to consumers.
  • As growth accelerates, and economies adjust to significant changes, such supply chain bottlenecks are likely to cause some bursts of inflation. However, we would note that – given time – supply chains generally adapt, backlogs are typically dealt with, and inflation usually calms. While we remain watchful, we believe that signs still point to the current inflationary pressures being temporary. Indeed, prices for key indicators like gasoline, used cars, hotel stays, and airfares are all starting to settle down.
  • Meanwhile, pandemic-related restrictions around the world are easing, and in many regions a version of normality is slowly returning. In keeping with this, the drag on global economic growth is abating. The daily pace of new vaccine doses being administered is falling, but from high levels, and booster shots are now beginning to be rolled out. Encouragingly, hospitalisation rates remain low compared to prior waves of the virus.
  • Last week, central banks in the US and UK began to talk more about ‘tapering’ – the withdrawal of some economic stimulus. US Federal Reserve Bank policymakers displayed a general consensus for higher interest rates in the years ahead, while interest rate expectations are starting to rise in the UK too. It was inevitable that central banks would back away at some point, and they are now beginning to communicate this more earnestly.
  • At this juncture, it is worth noting that the latest round of corporate reports (covering the second quarter of 2021) has now largely come to a close. Extremely strong results were recorded for earnings and sales. While such stellar results cannot continue indefinitely, for now, they have served to support high share price valuations.

Weekly market moves

  • A mixed week for world stock markets (in sterling terms) saw the UK, Europe and US perform positively, while Japan and emerging markets lagged once more.

  • Bond prices suffered last week (bond yields, which move inversely to prices, rose) amid confirmation that central banks intended to taper economic stimulus in the foreseeable future.

What to look out for this week

  • In the US, politicians must reach a deal to raise the federal borrowing limit (‘debt ceiling’) if the government is to avoid running out of money by mid-October. In the face of a potential government shutdown on Friday, all eyes will be on Republicans in the Senate (upper house) after the House of Representatives (lower house) passed measures that would keep the bills paid until early December.

  • Closer to home, the results of the German election are pending. A tight result is in the offing, and the shape of a coalition government remains unclear.

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