In light of new CPI data from the ONS this morning, reporting that inflation has risen to 9.1%, below are comments from Giles Coghlan (Chief Analyst, HYCM) and Jatin Ondhia (CEO, Shojin).
Inflation In The UK Is Rising
Giles Coghlan, Chief Analyst, HYCM said: “If today’s CPI print tells us one thing, it is that the UK’s economic outlook looks very bleak indeed. With forecasts suggesting that GDP will head into negative territory for 2023, the Bank of England has an impossible task on its hands. Ultimately, policymakers have very little choice other than to hike interest rates to bring down inflation. Without adequate quantitative tightening, the Monetary Policy Committee risks inflation spiralling wildly out of control and causing a wage-price spiral, which would be disastrous for the economy.
“As today’s inflation data came in at just a fraction below the market’s maximum expectations of 9.3% year-on-year, traders and investors should therefore watch for yet more aggressive action from the Monetary Policy Committee in August. Predictions are currently suggesting that inflation could top 11% this year – this, combined with the Ofgem cap rise due in October, means that the risk of a recession is looking more and more probable by the moment. Before the release of the inflation print, the short-term interest rate (STIR) markets were pricing in a 86% chance of a 50bps rate hike for the central bank’s August 04 meeting, so investors will no doubt be awaiting a hawkish response from the BoE.”
Jatin Ondhia, CEO of FCA-regulated investment platform Shojin said: “Prices are rising faster than they have for four decades and while May’s CPI figures represent little change from last month’s record hike, the tide remains strong and is set to continue rising, which could push inflation into double figures towards the end of the year.“The combination of sustained and high inflationary pressure with sharp rate rises and generally tighter monetary policy constitutes a radically different macroeconomic environment, posing a serious threat to investment returns and consumers’ finances. As the global economic outlook darkens, investors must take the time to reassess their inflation toolbox and consider which assets are likely to help cushion their portfolios against further hikes. Maintaining a well-diversified portfolio and ensuring investments remain aligned with long-term goals will be key in navigating the challenges and it should be expected that the defensive and income yielding capabilities of resilient assets, such as real estate, will stand out ever more sharply against the current economic climate.”