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.

FOR anyone who has children or grandchildren of a certain age, the big story of the week was probably yesterday’s A-level results (with 27.2% of students getting A or A* grades, which is back to pre-Covid levels). For everyone else, it was about inflation.

The headline figure shows it’s fallen. But when a drop in inflation is coupled with a resilient economy, that ‘good news’ may not be all it’s cracked up to be.  Here’s this week in charts. Enjoy.

1. Inflation slows again but …

There have only been two moments this century when average wages grew slower than inflation. These are the rare pinch points that politicians hate, when the average Joe feels poorer - and is poorer. One moment was a very brief spell in 2009, after the financial crisis. The second was the past year - a far more prolonged period. Let’s hope that inflation will fall from here and wages remain higher. This week offered updates on both.

UK average weekly earnings vs inflation

None

Source: ONS, 16.8.23. CPIH annual inflation rate and average weekly earnings, year on year, three month average growth.

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

None

Source: Goldman Sachs, August 2023, next twelve months price earning for FTSE 100, S&P 500, TOPIX, Nifty and HSCEI. 

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

None

Source: Fidelity International, 17.8.22 to 17.8.23. Past performance is not a reliable indicator of future returns

Five-year performance table

(%)
As at 17 August
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
M&S -33.1 -35.9 28.5 -7.6 67.5

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. 

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

Share this article

Latest articles

When will interest rates fall?

UK economy estimated to grow by 0.1%


Nafeesa Zaman

Nafeesa Zaman

Fidelity International

I put my cash in Premium Bonds - are they still worth it?

Are there better homes for my cash savings?


Ed Monk

Ed Monk

Fidelity International

City of London Investment Trust in focus

A closer look at the ‘dividend hero’


Nick Sudbury

Nick Sudbury

Investment writer