This month we look at the investment markets and the UK and Global economy.

June 8th saw a General Election in the UK with the Conservatives failing to gain sufficient seats for the majority required. A deal was done with the DUP to form a working government and this has led to concerns over Brexit with a weakened position most likely and has put Prime Minister Theresa May’s position under pressure.

Sterling was weaker as a result and a hung parliament added to the uncertainty for the Brexit negotiations.

UK House prices fall further in June. The number of homes being bought and sold has fallen for the third month in a row, according to government figures. Since the introduction of additional stamp duty rates in April 2016 across the UK residential transactions continue to be depressed.

UK economic growth edged slightly higher in the three months to June, as a stronger service sector offset weaker manufacturing and construction. The Office for National Statistics (ONS) said the economy expanded by 0.3% in the quarter, up from 0.2% in the previous three months.

While services such as retail, and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth

Darren Morgan, ONS head of national accounts

Chris Williamson, chief business economist at IHS Markit, said: “The confirmation of the lacklustre performance of the economy so far this year surely also diminishes the chance of an interest rate hike any time soon, especially as growth prospects for coming months have become increasingly skewed to the downside.”

Government borrowing increased last month after the state was forced to pay higher interest on its debt. Public sector net borrowing, excluding state-owned banks, rose to £6.9bn in June, up £2bn from a year earlier.

The Office for Budget Responsibility (OBR) published its first Fiscal Risks report, which identified possible dangers to the public finances. It pointed out that the UK was “much more sensitive” to higher inflation and interest rates, given that the country’s debt is higher than before the 2008 financial crisis. The ONS data showed that total government debt, excluding public sector banks, stood at £1.75 trillion at the end of June, which is equivalent to 87.4% of gross domestic product (GDP). This may limit the scope for easing austerity and therefore remain a drag on GDP. However, if current tax and spending plans are maintained, we could expect a decline in the budget deficit, which in turn may give the chancellor some room in his Autumn Budget for the priority areas like health, social care, policing and housing.

The Consumer Price Index (CPI) has increased further with data released by the Office for National Statistics showing that CPI was at 2.9% in May, up from 2.7% in April.

Clothing, food prices and the weak pound were cited by the ONS as the main contributors to the rise. Foreign holidays, computer games and other imported goods were made effectively more expensive by the weak pound throughout most of June.

Mark Carney, the Governor of the Bank of England commented in June twice on Interest Rates, which have caused some confusion. In mid-June he said that “now is not yet the time” before saying on the 28th June at a European Central Bank forum in Portugal that “some removal of monetary stimulus is likely to become necessary”. This has been interpreted as an indication that the UK may see an interest rate rise sooner than previously thought, although conversely the slow economic growth in the second quarter, dampens these expectations for the coming months.

Markets

FTSE 100 index of leading UK company shares finished June at 7,312.72, falling by 231.05 points or 3.06% during the month.

The benchmark 10 year UK Gilt yield stands at 1.260% at the start of July, rising sharply at the end of June as a result of Mark Carney’s hint at an interest rate rise.

£1 buys $1.2946 or €1.1385. The Forex Gold Index is $1,242.25/oz and the Silver Index is $16.48/oz. Brent Crude Oil Spot is currently $50.29/barrel.

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