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Astute Market Overview - 5th July 2023


Welcome to the Astute Market Overview of the last week, which marked the end of the first half of 2023.

We’ve talked a lot recently about interest rate increases; the Bank of England base rate has increased to 5.00% from its 0.1% low in December 2021 in a bid to tackle inflation. One of the most noticeable repercussions that we’ll experience in society is the increase in mortgage rates. Although the impact of these increases will have a lagged effect, taking a while to fully feed through to the economy, we are starting to see the impact of increasing rates feed through to the housing market, with Zoopla reporting last week that 42% of sellers are accepting offers at 5% or more lower than their asking price. This will be welcome news for the Bank of England; a sign that they are starting to see the results of over 18 months of action.

The current interest rate environment also saw issues with Thames Water – the private water company providing services in much of London, Gloucestershire, Kent and Essex – reach a critical point last week.

Following its privatisation over three decades ago, the company built up billions of pounds of debt. Thames Water’s ratio of debt to equity is over 80%, one of the highest in the UK water sector, based on Ofwat data from their 2021/22 annual report.

Due to the recent increase in interest rates, the cost of servicing this debt is drowning the company, with each interest rate increase turning the screw. The company may now look towards shareholders for support and additional funding to keep it afloat.

In artificial intelligence news, OpenAI, who are the creator of ChatGPT, the trending AI chatbot, are planning to open a corporate office in London, their first international expansion. Whilst the evolution of AI is a trending topic, and a conversation is quickly shaping around what it could mean for human jobs – “will it make my job obsolete?”, “will AI bots takeover the future?!)”, it is worth noting that the new office will bring job opportunities along with it (presumable human) according to its website.

Some of the things that we will be looking out for this week include Purchasing Managers Index data for US and UK, and jobs data for the US.

See you then.

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