19 July 2023
If you are covering the latest UK inflation figures, please find below a comment from Marcus Brookes, chief investment officer at Quilter Investors:
“Today’s inflation figures give us the glimmer of light as it finally surprises by beating expectations and falling more than predicted. However, while it is a nice surprise to beat expectations, it still leave us wondering once again why the UK is such a drastic outlier compared to other developed economies when it comes to inflation. While the rate of the price rises has dropped to 7.9%, this is still far above where the Bank of England wants it to be before it can even consider a pause in the rate hikes we have become accustomed to.
“Frustratingly, while also beating expectations core inflation is remaining persistently stubborn and refusing to budge significantly. It may be that finally the well-known lags in the effect of interest rate rises are beginning to have an effect, but it still remains very sticky so way too early to begin celebrating. Demand has withstood both inflation and the rise in rates, but cracks are appearing, and as more mortgage holders get exposed to the current rates, the economy is likely to be hit as a result.
“This is unfortunately the path that is likely going to have to be taken in order to get inflation back down to target. The Bank of England has raised rates considerably, and shows no sign of slowing down and thus we are probably on a path to recession in 2024. With an election likely to be next year too there is going to be jockeying from both main political parties, as they look to find a way to stimulate growth. However, in a period where inflation is sky high this is going to be difficult to achieve and thus the choppy waters are here to stay for at least the next 18 months.
“Inflation should begin to come back down to more palatable levels soon, but as we have seen these forecasts are unpredictable. For investors, this means seeking shelter in quality companies that can navigate this difficult environment, while also considering UK fixed income investments, such as gilts, as these look at attractive prices right now as we head into a potentially difficult economic period.”
