Inflation fell, but not by much

January brought a minor improvement in the inflation picture as the number for December 2022 came in at 10.7%, down from 10.9% in November 2022. This fall may seem small, and there’s no denying that 10.7% is still a historically very high number. So, while it’s positive news, there’s still lots of pressure on all of our pockets. 

However, the optimistic view is that inflation may now have peaked and will fall from here. That said, there’s still a long way to go to get back to the Bank of England’s target of 2%.


Positive news at the pumps 

A supermarket price war between big names like Sainsbury’s and Tesco contributed to the slightly lower inflation figure and brought down the cost of petrol in the UK. This will be welcome news for many, with petrol falling below £1.50 a litre for the first time since the Russian invasion of Ukraine.

The ONS reported that fuel prices had risen by 11.5% in the year to December 2022, but this was down from 17.2% in November 2022. This made December 2022 the sixth consecutive month that motor fuel prices decreased, all the way down from a high of 43.7% year-on-year in July 2022.

However, while motor fuel prices fell, many people are still finding it hard to heat their homes over winter as gas and electricity prices continue to rise. The same report by the ONS stated that 53% of adults were ‘very, or somewhat, worried about keeping warm in their home this winter’.


FTSE 100 and S&P 500 rise

The FTSE went up by 2.98% in the month and the S&P increased by 6.60%.* In the case of the former, this was a continuation of a positive trend we’ve seen since the bottom of the market on 12th October 2023. Since then the UK flagship index has risen by a very healthy 13.96%.

You likely haven’t noticed this as stock market rises don’t generate the same headlines as falls. You notice particularly bad days in markets as they make the headlines on the evening papers or your newsfeed. Pictures of stressed traders looking at screens covered in red accompanied by headlines of “Billions wiped off the value of UK companies”.

This is in stark contrast to when markets tick away positively in the background. Rises like we have seen in the last six months at best make the money and personal finance sections of papers, never the front page. And this is how it should be really, we should ignore market ups and downs and invest for the long term. The news cycle is very good at allowing us to ignore the ups, less so the downs.

Plus, all this is before we even consider dividends. The FTSE 100 is yielding a healthy 3.5% at the moment so even if the headline figure of the market goes nowhere, you’re still getting paid a healthy income just by being invested. So ignore the headlines when you can and focus on your long-term plan.


Predictions for 2023

With all that said, what’s going to happen to the markets in 2023? December and January are a fruitful time for market and economic predictions. Pundits and commentators will often say “Economic growth is going to do X and that of course means Y for inflation which will have the following impact on markets…”

There seems to be little regard for the fact that the future is essentially unknowable and also little regard for predictions made last year. Not many, if any, predicted inflation rising to such a degree, interest rates rising so quickly behind, or  Russia’s war in Ukraine. All of which led to 2022 broadly being quite a negative year for investors. And yet we economists, fund managers and investors queue up to offer predictions for the year ahead.

We are happy to admit at Moneybox that we don’t know what investments are going to do in 2023 and are resolute in the belief that nobody can predict markets over that short a time horizon. That does not mean we aren’t optimistic though. We are – and that’s based on decades of market data showing that over time, markets tend to rise (read why here).

So in 2023 markets will continue to rise and fall as they always have and headlines will be written when they fall. But the general trend over the longer term will be positive, which is why if you have a long enough time horizon, investing remains as good an option for building wealth as it has always been.


*Google Finance, 3rd January to 31st January 2023. Markets were closed on Sunday 1st January and Monday 2nd January for the New Year’s Day bank holiday.