The UK's rate of inflation is probably being held back by the strength of sterling and the lack of wage growth in Britain, according to Chief Investment Officer Haig Bathgate.
The Office for National Statistics said today inflation slowed to 2% in December, hitting the Bank of England's target. The strength of the pound in relation to the US dollar – it's risen 10% in the past six months – is helping keep a lid on the sterling cost of anything we buy that's originally priced in dollars. And while wages aren't directly taken into account on this measure of inflation, slow growth in remuneration will keep consumption low, which again keeps pressure off prices. Another factor that's helped slow the rate is a decline in food inflation.
The wider economic and business environment is having a strong influence on the earnings of companies. The Bank of England's Help-to-Buy scheme, which, like all stimulus measures, is more likely to stay in place while inflation remains low, is encouraging a surge of new homebuyers and is boosting the fortunes of building firms. Homebuilder Barratt reported today that forward sales had climbed 71%.
The increased use of the internet – almost one in five non-food purchases was done online in December – is helping companies such as internet fashion retailer Asos. It said today its revenue climbed by more than a third in the last four months of the year.
Haig, speaking in advance of today's inflation and company reports, was interviewed on BBC Radio's Good Morning Scotland where he also commented on the $16 billion purchase of Laphroaig maker Beam Inc. by Japanese whisky distiller Suntory.
This content was generated prior to Turcan Connell Asset Management Limited operating as Tcam.