The week in charts: inflation, India and M&S

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

After months of back-to-back economic gloom, we got a glimmer of hope. Headline inflation slowed to 6.8% in July. Core inflation, which is seen as a better indicator of price pressures, remains stubbornly unchanged at 6.9% though. The big question is whether this inflation slowdown is enough to keep interest rates in check?

The resilience of the UK economy, evident from data on both UK GDP and wage growth released this week, could itself be a problem. Wage hikes may force cash-strapped businesses to hike prices to fund the cost, pushing up inflation again. And this, in turn, could prompt the Bank of England to raise interest rates again.

And let’s not forget that the pensions triple lock increases annually in line with whichever is the higher of inflation, wage growth or a baseline 2.5%. Right now, with pay rises running at around 8%, using that measure the state pension is set to surge well above £11,000 next spring. That might be a welcome relief for pensioners, but it puts a higher-than-anticipated strain on already stretched public finances.

2. India has cause for a double celebration this week

Attention focused on India this week as the country celebrated the 76th anniversary of its independence. Since 1947, India has been transformed, most dramatically since a series of economic reforms in 1991 set the country on a path to modernity. Stock market investors have been a major beneficiary of the changes sweeping India over the past three decades, with shares rising 20-fold over that period, a performance that’s twice as good as the US market over the same period and eight times the UK’s return. The popularity of Indian shares has been reflected in a sky-high valuation multiple. As the chart here shows, India’s shares are more expensive even than those in the US benchmark, the S&P 500. At over 20 times expected earnings, shares are nearly twice as highly valued as those in China and the UK.

Price earnings for key global markets

3. Could M&S re-enter the FTSE 100?

The fact that Marks & Spencer has managed to increase food and home sales slap bang in the middle of the cost-of-living crisis is no mean feat.

Management’s hard work in turning M&S around has paid off, sparking a share price rise that has seen its shares climb more than 60% this year. This now stands it in good stead to make it into the FTSE 100 when the next reshuffle takes place on 18 September.

That would be welcomed after it was unceremoniously booted out of the blue-chip index for the first time in its 139-year history, four years ago. In that time - despite the pandemic and the cost-of-living crisis - M&S has delivered the goods, when some had started to wonder whether the writing was all on the wall for the once inimitable retailer.

The company said on Tuesday that like-for-like clothing and home sales were up more than 6% in the first 19 weeks of its financial year, with strong growth in stores, while food sales climbed 11%. “We now expect the outcome for the year to show profit growth on 2022-23, and the interim results to show a significant improvement against previous expectations,” M&S said.

M&S share price chart

Five-year performance table

Past performance is not a reliable indicator of future returns

Source: FE, as at 17.8.23 Basis: Total returns in GBP. Excludes initial charge.