Inflation is rising but it won’t derail the UK’s strong economic recovery from the pandemic, an investment expert told business leaders at a HURST event.
Alex Brandreth, chief investment officer at Luna Investment Management, said he expects inflation over the next few years to be slightly ahead of the two per cent target set for the Bank of England, potentially reaching 2.5 per cent.
This is due to rising oil prices and because of a surge in demand as the economy bounces back from Covid-19.
Alex gave his assessment at HURST’s latest quarterly economic update, which was held on Zoom.
Luna, which is based in Manchester and has clients across the UK, was launched last year and has grown to a 10-strong team with £350m of assets under management.
Alex said inflation remained low in 2020 as petrol, electricity and gas prices were depressed, but those headwinds were now beginning to change direction, with oil prices back on the increase.
Despite this, however, he predicts a ‘blockbuster’ year for growth in the UK as the country emerges from the pandemic and its resulting slump.
By the end of 2021, the Office for National Statistics and the Bank of England expect the economy to be back where it was at the end of 2019 before Covid-19 struck, he said.
This is due to a number of factors. We’ve become more used to living under lockdown and parts of the economy, such as construction and essential services, have remained opened.
Government schemes such as furlough and the stamp duty holiday have helped to keep the economy going.
Savings have increased, giving consumers have more cash to spend as bars, restaurants and other areas of the economy reopen amid a successful vaccination programme.
Businesses, too, have been able to save cash, leading to an upsurge in mergers and acquisitions activity.
Alex said governments worldwide have been looking to support their economies during the pandemic to help them rebound as quickly as possible, citing infrastructure spending commitments as a good example.
Against this backdrop, investment decisions are changing. Alex said growth and tech stocks have come under pressure, adding that Luna was now focusing on sectors such as travel, leisure, hospitality, oil and gas, banks and infrastructure.
Safe havens such as gold and silver have lost value, but copper has risen along with oil.
Alex also drew attention to the pound’s current cheapness, which makes the UK more attractive to overseas investors. However, with more capital coming into the country, he expects sterling to rise by up to 10 per cent this year.
He said the best period in which to invest is when an economy emerges from recession, and that the current ‘bull market’ for stocks is likely to run for some time.
Low interest rates are likely to continue for the next few years, but negative rates could be on the cards if the economy requires fresh stimulation, as has occurred in some countries.