What can we expect to dominate the financial landscape during the autumn?

From market confidence, to post-Covid recovery and inflation – there are a number of factors to watch, writes Hamish McRae

‘Will market confidence persist through the autumn?’ (Getty Images)

September means it’s time to go back to work for lots of us. The August bank holiday here marks the end of summer, just as Labour Day next Monday marks the end of the US one. So what will the features that dominate economic and financial affairs in autumn be – and what should we be worried about, or enthusing over? Here are my top five.

Let’s start with America. It’s worth reminding ourselves that not only is the US the largest economy in the world but that its stock market values account for more than half the total of global equity. It affects us all – so the first thing to look for will be what congress does to Joe Biden’s tax and spending plans. Last week, the House passed the $3.5bn (£2.5bn) budget resolution without Republican support. And now the Democrats hope to get the infrastructure bill through both houses by 27 September. If that happens, we should expect a huge fiscal boost to the economy.

But what might the US central bank do? That’s the second thing to look out for. Eventually, quantitative easing has to end, the federal reserve has to stop buying US government debt and interest rates have to go up. But when? Last week the federal reserve chair, Jerome Powell, hinted that it might start cutting down the purchases before the end of the year, but that would not necessarily signal increases in interest rates. While the markets hang on every word the chair makes, the reality is that policy will be determined by real-world events. If inflation persists, rates will go up. And they will go up in the UK too.

That leads to the third concern. Could market confidence persist through autumn, or will something shatter it? Predictions about markets are either brave, stupid or both – but with values currently at record levels, a correction must be on the cards eventually. When it is – and the reckoning may be some way off – what happens in the US will have a profound impact on the UK, and the rest of the world.

Worry number four is the state of recovery, which applies everywhere, and not just in the developed world. By the end of the year, we’ll know whether things will get back to pre-Covid conditions, or whether the world economy will suffer long term. There are a lot of things going wrong at the same time, including disruption of global supply chains, damage to some old retail-style industries, and labour shortages in key industries. Plus, for Brits, there is the disruption of trade with the EU to contend with.

This will be an autumn for the businesses that have managed to survive the pandemic to figure out long-term strategies. The winners will be fine, even if growth falters in the next few months. But if recovery stalls, there could be another wave of companies that don’t make it.

Finally, inflation. There is going to be more of it through the rest of this year. It will be welcome to some extent, in that it will be the result of skilled worker wages climbing. But what no one knows is whether this will be an autumn blip or whether this is the start of a more destructive string of rising prices. The Bank of England expects inflation to reach 4 per cent in the next few months. But it could be more.

To be clear, I can’t see autumn being catastrophic. On balance, things will get better, not worse, as the world economy scrambles to get back to normality. However, it would be wrong not to show some caution – more caution than the financial markets seem able to display at the moment.