Your weekly economic update from the team at FXD Capital

UK economic figures for January displayed positive signs of a rebound following the Omicron scare in December. GDP rose 0.8% on the month, exceeding analyst expectations and shutting the door on any technical recession murmurs following the previous print of -0.2%. Nevertheless, UK GDP is still narrowly above its pre-Covid watermark, by 0.8% to be exact.

As always, the devil is in the detail, with UK economic figures painting a disparate picture. For example, GDP attributed to the health sector is 15% above pre-Covid levels, inflated through the sheer weight of expenditure released by the government, and perhaps through more adjacent factors like citizens taking more health-conscious approaches to life.

Consumer-facing services are still below January 2020 levels. While the definition is a broad church to consider, the accrual of two years of stop-start lockdowns, labour shortages, supply chain catastrophes and now the inflation zeitgeist has provided little respite for consumer-facing sectors.

Fuel prices could feasibly reach £2 a litre by April; incidentally, new home energy caps come into play in the same month. The situation with fuel, exacerbated by the war in Ukraine, plays into the long-standing view that 2022 may be a watershed moment for consumer prices and spiral into a cost of living crisis. Many can quickly discount petrol prices based on their perception of how much they drive. Yet, it can often be forgotten about the wide-reaching externalities of what fuel costs do for the cost of haulage, company expenses and the late-night Uber ride home. 

Western countries are redrawing their commodity supply chains to firstly cut-off Russian exposure and then mitigate the inflationary effects of the shortfall. Treasury departments in Venezuela and Iran are licking their lips at the prospect of having their moment in the spotlight, with the US removing the mothballs from refineries built to process the thick crude produced by Venezeual’s Orinoco reserves.

The repositioning of commodity supply chains will have repercussions that manifest clearly over the next couple of years. On the side of Russia, the petri-dish of how-to-dismantle-an-economy over a month will bring pain for its citizens, but many unknowns about the effect on food supply across the world. The danger is China striking deals to prioritise depleted wheat stocks to feed its nation and what that implies for other reliant countries in the Arab world. If the US opens up the doors for trade in Iranian oil, what effect would that have on local rival Saudi Arabia engaged in conflict in Yemen?

The effect of the war in Ukraine is starting to filter through into GDP forecasts. Berenberg data predicts that the delta on GDP growth will range from a negligible -0.1% in the US too -1.3% in Spain. In the UK, the negative effect is pointing towards -0.8%. The strain to growth is driven by inflation, which Goldman Sachs now forecasts to reach 9% this year on these shores. Going back to petrol and food prices, the effect on low-to-middle income households will be drastic in terms of tangible increases to the cost of living. The fear for policymakers is these very demographics have also been compromised by the effect of the previous two years on savings levels, with 2022 earmarked as the turning point to replenish depleted funds. 

While UK public finances have shown positive surpluses heading out o Covid, based on prior assumptions, they are still not yet in fit enough shape to revert to more stimulus for the economy. With inflation high and interest rates seemingly on a path upward, the Conservative government may be forced into a corner it regularly tries to avert: taxes for the wealthy. With the next election probably closer now than the previous one, the manoeuvres Chancellor Rishi Sunak makes will be fascinating to watch.

In other news, trading in nickel was suspended at the LME following a 250% price spike on Tuesday, reaching $100,000 per tonne. While nickel, like other commodities, is experiencing upward price pressure from geopolitics, the reasoning behind the spike was attributed to a short squeeze being placed on a Chinese producer struggling to cover the margin on a sizeable short trade.

The ECB also announced plans to scale by its bond-buying program in response to inflation being driven up by the Ukrainian conflict. Indicators now point towards a rate rise in 2022 for the eurozone. US inflation also broke records (again) for February, hitting a 40-year high of 8%

All the best for the week ahead 




Our weekly column is written by Alex Graham, Economic Advisor to FXD Capital. Originally a bank treasurer, Alex’s weekly roundup intends to provide a conversational, top-down view of what is going on in world macroeconomics and how it impacts business on the ground level.

Would you like to receive FXD Capital’s Insights directly to your mail inbox? Click the button to subscribe to our email newsletters.

Subscribe to our weekly economic update


This document should be considered a marketing communication for the purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.  The information given in this document is for information purposes only and is not a solicitation, or an offer to buy or sell any security or any other investment or banking product. It does not constitute investment, legal, accounting or tax advice, or a representation that any investment or service is suitable or appropriate to your individual circumstances.

You should seek professional advice before making any investment decision. The value of investments and the income from them can fall as well as rise. An investor may not get back the amount of money invested. Past performance is not a reliable indicator of future results. Investment returns may increase or decrease as a result of currency fluctuations.

The facts and opinions expressed are those of the author of the document, as of the date of writing and are liable to change without notice. We do not make any representations as to the accuracy or completeness of the material and do not accept liability for any loss arising from the use hereof. We are under no obligation to ensure that updates to the document are brought to the attention of any recipient of this material. Please note that this commentary may not be reproduced, distributed, disseminated, broadcasted, sold, published or circulated without prior consent from FXD Capital Limited.

FXD Capital Limited is registered in England & Wales (No. 11397216) with its registered office at 3 Lloyds Avenue, London, EC3N 3DS. FXD Markets Limited is registered in England & Wales (No. 11876665). FXD Markets is an FCA registered trading name of Kyte Broking Limited. Kyte Broking Limited registered in England & Wales (No. 02781314) is authorised and regulated by the Financial Conduct Authority (“FCA”) under FRN: 174863 with its registered office at 55 Baker Street, London, W1U 8EW. Kyte Broking Limited is a member of the National Futures Association (“NFA”) under NFA ID: 0288293.