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Investment Market Update - 16 February 2022

Good morning and welcome to another day of market updates.

Markets have slipped back below 7600 levels this morning as inflation has hit 30 years high this morning.


The cost of living hit a fresh 30-year high last month as energy, fuel and food prices continued to soar and retailers reined in seasonal discounts. Prices surged by 5.5% in the 12 months to January, up from 5.4% in December, increasing the squeeze on household budgets. Inflation is now rising faster than wages and is expected to climb above 7% this year. The government said it was taking action but Labour urged it to do more. Inflation is the rate at which prices rise. If the cost of a bottle of milk was £1 and then rises by 5p, milk inflation is 5%.

  • Why are prices rising so quickly?

Since pandemic restrictions were eased last year, companies have faced higher wage, shipping and energy costs which they have passed on to customers. The Office for National Statistics (ONS) said electricity bills were up 19% in the year to January and gas bills up by 28%. Housing costs have also been rising, while the ONS said retailers offered fewer sales and discounts in the New Year, compared to the steeper discounts seen last January. "Clothing and footwear pushed inflation up this month and although there were still the traditional price drops, it was the smallest January fall since 1990, with fewer sales than last year," ONS chief economist Grant Fitzner said. The cost of household staples is also rising, with pasta prices up 15%, cooking oil up 16% and margarine soaring 37% in the year to January, squeezing household budgets. Heineken, the world's second largest brewer, has warned that it will increase the price of its beers due to the impact of inflation. The firm, which sells brand including Strongbow cider, Amstel and Europe's best-selling lager, Heineken, blamed soaring ingredient and energy costs. It comes after the founder of Cobra beer also said its prices will rise because of "vicious" cost pressures. Neither firm has said how much their prices will go up by. Heineken's chief executive Dolf van den Brink said: "These kind of price increases and inflation, I think we have not seen in a generation." He added that putting up prices could lead to "softer beer consumption" as drinkers reined in their spending due to soaring living costs. The UK has been considering sanctions against Russia over Ukraine but Foreign Secretary Liz Truss has told the BBC "there have been issues in the past with illicit finance in London, which we are clearing up". Why is it difficult to tackle the issue? How much Russian money is there in the UK? Many wealthy individuals and companies from Russia and around the world invest legitimately in UK financial and property markets. But the anti-corruption organisation Transparency International has identified more than £5bn of property bought in the UK with what it says is "suspicious wealth", one-fifth of which has come from Russia. A Home Office report says the UK has seen "a significant volume of Russian, or Russian-linked illicit finance", which is spent on things like luxury property, cars and school fees, and sometimes as donations to cultural institutions, which allow individuals to "launder their reputation". When it comes to property, which can be owned through companies rather than in the names of individuals, information sometimes does not come easily. The Overseas Company Ownership database for England and Wales says only four of 94,000 properties where the registered legal owner is an overseas company, are listed as being owned by Russian companies. But it's possible that many more property purchases could ultimately be owned by Russian individuals, using companies based overseas in places such as the British Virgin Islands (BVI). The scale of the use of these companies was revealed in a major leak of almost 12 million documents known as the Pandora Papers in October 2021. It exposed hidden wealth, tax avoidance and, in some cases, money laundering by some of the world's rich and powerful people. Researchers identified more than 700 offshore companies which owned UK properties, and found that 5% of them were owned by Russian citizens. One example was Alexei Chepa, a Russian politician and businessman, who used a BVI company to buy a 10-bedroom mansion in Holland Park in 2011 - it was sold last year for £25m. His representatives said the purchase "would have followed absolutely the proper processes as advised at the time". The UK's "golden visa" - Tier 1 (Investor) visa scheme - offers residency to those rich enough to invest £2m or more in the UK, and allows their families to join them. Holders of these visas can then apply for permanent residency in the UK. How quickly they can apply depends on the size of their investment:

  • Two years with £10m

  • Three years with £5m

  • Five years with a £2m investment

The Home Office has issued 14,516 investor visas to Russian citizens since the scheme was introduced in 2008. Russian companies have also been able to raise large sums in share sales on the London Stock Exchange. Have a great day! Best Regards S Dhanda

Head of Wealth @ ALFRED DUNN


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