11 investment and finance experts share their thoughts on today’s UK inflation figures.
Paul Craig, portfolio manager at Quilter Investors:
“It’s back to the 90s for inflation, with CPI hitting 5.4% in the year to December, the highest level since March 1992. When inflation was last this high, John Major was Prime Minister and Silence of the Lambs had just picked up an Oscar for Best Picture at the 64th Academy Awards.
“It’s not so much Silence of the Lambs now but Silence of the Doves. The Bank of England is vindicated in its decision to hike rates in December in the face of Omicron uncertainty, but it could still go either way when the MPC meets in early February. The MPC will be faced with a difficult trade-off between ensuring financial stability or helping households cope with a cost of living crisis that is set to squeeze household finances over a difficult winter period. It’s not just the cost of living that is increasing, so is the cost of going to work, and wage increases may not be enough to cover the cost of returning to normality. The ONS published figures showing wage growth of 3.8% yesterday, so workers are facing a real terms pay decline of 1.6%. Taken together, there is a very real concern that in-work poverty is growing.
“It seems like madness now that only a year ago we were pondering whether the Bank of England would take rates below zero, but even with inflation hitting 5.4%, things will get worse before they get better. Inflation is expected to peak in the second quarter before starting to settle down in the latter stages of 2022 and early 2023.
“We are at a historical juncture for markets and developed economies, which are battling with inflation numbers not seen for decades outside emerging markets. Investors are faced with a delicate market environment at the moment, and they will need to watch the data and markets very closely and allocate accordingly. Diversification, active management and prudency are the key tools for investors to use now.”
Ian Warwick, Managing Partner at Deepbridge Capital:
“As expected, inflation has continued to rise above 2021’s peak of 5%. Combine this with the government’s decision to raise interest rates at the end of last year and we believe that 2022 will be a difficult year for many SMEs across the country. These companies will struggle to fund working capital needs due to the reduced value of their dry powder. Subsequently, it remains critically important that scale-up businesses, particularly in high-growth sectors such as digital technologies and life sciences are supported, as they will play a vital role in driving economic growth in the post-pandemic world.
“Government initiatives such as the Enterprise Investment Scheme (EIS) have never been more important for helping entrepreneurs and innovators source the funding they require, whilst also offering private investors with tax incentives to develop UK-supporting private equity portfolios. With our EIS funds continuing to reach record levels of funding, it is evident that there is considerable demand from investors and financial advisers alike to invest in early-stage UK companies which we believe will be at the forefront of our economic recovery.”
Lauren Thomas, Economist at Glassdoor:
“Inflation is eating away at wages at a brutal pace we haven’t seen for many years. Lower income workers are being hit particularly hard, especially as the cost of fuel and electricity rises. If employers don’t want their workers joining the Great Resignation, they need to pay attention to inflation and increase wages to keep their pay competitive.”
Adam Walkom, Co-founder at London-based Permanent Wealth Partners:
“There are never any good options with inflation. Raise rates to control it and reduce business momentum and make mortgages and debts more expensive. Let it run rampant and the cost of living keeps going up. Policymakers at the Bank of England are rediscovering this predicament now and are damned if they do and damned if they don’t. This is why for many years all Central Banks have had a single mandate, which was to control inflation. This has slackened off over the last few years when inflation wasn’t a concern and we are now paying the price — literally — for shifting priorities.”
Scott Gallacher, a Chartered Financial Planner at Leicestershire-based independent financial advisers, Rowley Turton:
“The rising cost of living is hitting everyone and we brought our annual pay rises forward by three months to help our staff with this. However, this is of course an additional cost to our business which we can’t pass onto clients. We were lucky on the energy side as we took out a two-year fixed rate deal in the summer so that’s at least one worry we don’t have. Unfortunately, today’s high inflation is a global problem and the government raising interest rates again in February will do little to contain it. But it could be disastrous for the UK economy by hitting hard-working families through higher mortgage costs.”
Colin Dyer, Client Director at abrdn Financial Planning:
“With costs soaring for food, fuel and energy, as well as the uncertainty that the Omicron variant brought, it is no surprise that we are continuing to see inflation grow. And although this is the kind of inflation that is felt by almost everyone, clearly those on low or fixed incomes, such as retirees, face the toughest struggle.
“The Bank of England raising the base rate to 0.25% last month might seem like good news at face value, but it is still just a fraction of where inflation sits. That’s why those relying on their savings need to do what they can to outpace inflation – including considering investing rather than holding excess money in cash – or risk their hard-earned money being eroded over time.”