UK inflation to peak then stay high

UK inflation, which reached 3% in September, will peak in the coming months as the post-Brexit vote currency effects are passed onto investors, according to fund manager Newton Investment Management.

Newton multi-asset portfolio manager, Paul Flood, said that inflation, as measured by the consumer price index (CPI) will peak at 3.1% in November. Flood commented: “We expect inflation to remain elevated in the longer term given the accommodative policy and low levels of unemployment, which may put upward pressure on company wage bills, should these costs get passed through into pricing of goods and services.”

While the UK is seeing inflation rise, it’s subdued elsewhere, although fund manager NN Investment Partners said that a reflation theme is gaining ground in equity markets. Nicolas Simar, head of equity value at NN Investment Partners, said equity investors should now switch from quality to value stocks, to play the global recovery and take advantage of valuation gaps. Simar said that the difference between the most expensive and cheapest stocks in both Europe and the US are not far from the absolute peak of the Tech, Media and Technology (TMT) bubble and at other similar points in the market cycle. “The March 2000 TMT-bubble, the peak of the Eurozone crisis in July 2012 and the June 2016 UK referendum on EU membership were, over the last 20 years, points in history of extreme valuation dispersion and therefore the best entry points into the value style. The current high dispersion level is certainly a signal investors should not ignore.”