Quarterly Market Overview 2021
As 2021 started, the lockdowns from the pandemics were lifted, and the economy slowly started to open again. The people adjusted to the new normal and moved forward with their everyday lives. Economic growth also started to rise slowly. However, during the third quarter of the year, the economic growth was much better than the entire year of 2020. Even though the monetary policy was tighter than anticipated, the central banks wished to convey that it was the start of them pulling back all pandemic related support.
Fiscal policy developments in the third quarter were tight, too. The UK government announced an increase in the national insurance rates in the coming year, whereas current interest rates seemed to be low in Q3. Housing rates also tumbled. The government mentioned how it is going to shift its focus to social care and new health policies from the year 2023.
With the moderation in support from the government, especially concerning the pandemic, there was extensive growth in the financial markets. Sectors like healthcare and technology soared, whereas value and cyclical sectors like banks and airlines did not do so well. Monetary and fiscal support was narrowed in the third quarter, and transitory inflation took place with low-interest rates.
Both the economy of the United Kingdom and markets transitioned in 2021, with both going up during some quarters and falling in others. This encouraged investors to have a balanced approach in their investments, taking them towards the multi-asset portfolio range that included different asset classes to protect them against potential losses.
The energy prices in Q3 also increased. The note from the Bank of England stated, ‘while inflation is expected to rise further in the near term, the committee’s central expectation continues to be that current elevated global cost pressure will prove transitory’. This signalled to citizens a further tightening in the bank’s policy in the coming months.
Equities Markets
Talking about the equities market, the equities in the third quarter increased due to several factors. The energy sector was one of the clear winners in soaring prices due to the crude oil recovery. However, some exceptionally highly valued companies in the consumer goods sector did not perform well at all, though some very low-value grocery retailers saw a remarkable jump in their performance,
The merger and acquisition in the United Kingdom began with a counteroffer for the Morrison Supermarkets and saw various bids. The gaming market soared as usual, and there was an aerospace bid that turned heads. The industrial sector in the third quarter marked a positive contribution in the United Kingdom’s road to recovery in 22021. The travel restrictions, when finally eased, saw the dollar strengthening and the sterling weakening for quite some time.
The most hit were the small and mid-cap companies in the equities market in the third quarter but performed well otherwise. They were also responsible for decent returns to investors as a whole. Inflationary pressures, however, continued in the country and went over and beyond expectations.
Some other points about the third quarter in the United Kingdom –
- Supply bottlenecks remained
- Output was constrained overall
- There was a fuel and natural gas shortage
- Market interest rates tended to increase
- There was a drop in the interest rates of the Asian banks due to the Chinese market and economic uncertainty
- System average price increased by 8 per cent for gas
- 6 per cent of the businesses in the UK ended up stockpiling the materials and goods
- Out of the 6 per cent businesses, 16 per cent belonged to the wholesale and retail trade industry
Bottom line
Overall, the United Kingdom’s economy saw some recovery in the third quarter compared to the year 2020. Even though the pandemic support was withdrawn from banks, the financial markets and economy as a whole performed well. Restrictions were eased, and people were back at their jobs with gas and energy prices soaring but not going out of control. There is still some ease in the monetary and fiscal policy required by the Bank of England, but the central bank seems to have big plans for the upcoming two years with respect to its citizen’s health and social aspect. This stands as a breath of fresh air and good news for the people amid the new mutations of the coronavirus pandemic.
