​Investment Update – November 2021

As we head into winter there doesn’t seem to be much of a feel-good factor around the UK economy, despite OECD forecasts that the UK will be the fastest growing economy in the G7 next year. This illustrious group includes Canada, France, Germany, Italy, Japan and the United States.

Supply chain bottlenecks, labour shortages and rising energy prices have pushed inflation higher as we approach the Christmas season. This squeeze in consumer incomes will be exacerbated by next years rise in National Insurance contributions and an increase in the energy price cap, whilst the government has already announced that the personal tax allowance and higher rate threshold will be frozen until April 2026.

Unfortunately for the Bank of England, there is very little they can do about rising oil and gas prices. Nor can they fix the shortage of HGV drivers or source more semi-conductor chips, which are so vital to the production of new cars. Strong demand has overwhelmed supply chains this year, and it will take time for this imbalance to normalise.

In recent weeks the bank governor, Andrew Bailey, has talked up the prospect of raising interest rates in order to combat higher inflation. However, raising interest rates when consumer incomes are under pressure, and economic data is weakening, doesn’t sound like sensible monetary policy to us. Higher interest rates will lower consumption and investment by consumers and businesses, whilst raising the cost of servicing existing debt.

Fortunately, we have also heard in recent days from other members of the Monetary Policy Committee at the Bank of England, who do not share the Governors view that the bank must act soon in order to reign in inflation. Given the fragility of the recovery, and a more cautious consumer in the face of rising Covid cases, we think discussion around interest rate rises can wait until next year.

These are our views, as always, and don’t constitute advice in any way.

The value of investments can fall as well as rise and past performance is not a guide to the future. The content of this publication is for information only. It does not represent personal advice or a personal recommendation, and should not be interpreted as such. Please do not act upon any part of it without first having consulted an Independent Financial Adviser.

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