We’re likely to see more “economic pain” in Britain as interest rates stay high to tame rising prices, with mortgage holders hit particularly hard.
But inflation is falling in the US, which has a far greater impact on global investment returns, and there are signs its central bank could soon stop raising rates, which could be positive for markets.
Coutts’ clients heard our experts’ views on this and more at our latest exclusive quarterly investment event.
Core inflation in the US – which strips out fast-changing fuel and food prices – now sits at 5.3% for the 12 months to May, while in the UK it’s just risen to a 31-year high of 7.1%. Headline inflation, which includes fuel and food, usually hits headlines, but central banks tend to focus more on the core number as it gives a more accurate picture of an economy.
Lilian Chovin, Coutts’ Head of Asset Allocation, said at the event: “Most importantly, the numbers are heading in different directions. In the UK core inflation is still rising, while in the US it’s been falling since last September.
“The UK’s higher number and different trajectory means the Bank of England is perceived as having not done as good a job as the US Federal Reserve in tackling rising prices. And confidence in whether it will do a good job going forwards is low – one reason why mortgage rates are on the rise.”
He added: “While we still believe UK inflation will trend lower eventually, it will be slower than the US, and it will require more economic pain to get there.”