Quarterly Review

Inflation, Flux and Fiscal Evolution

David Wheildon / August 2017

It’s not simply economic messages that are mixed at the moment, it’s political outlooks. This means moving through a shifting landscape even more than usual, where trends and influences evolve and predictions are loose. But, As David Wheildon explains, this simply means doing what we always do – keeping an adjusting eye on how circumstances shape up, day by day.

In May I talked of mixed economic messages and the lack of a clear way forward; the last three months have proved to follow exactly this path as we continue to see vacillating economic results and predictions across most sectors of the global economy.  In simple terms there is very little clear data that provides sound evidence of a definite direction of travel for markets. 

At times like this it is crucial to be invested not in bland market sector funds but to make use of the skills, talents and resources of the global investment companies and their managers’ ability to pick the right time to buy (and sell) their investments.  We continue to believe that the role of active management is crucial in almost all sectors and are working very closely with the fund managers to understand their market positions and predictions for the growth in their funds. The only exception to this is America where, yet again, we find that the money spent on active management cannot be justified and are continuing to include a lower cost fund in this area which invests across all sectors of the market.


The mixed messages are not only confined to investment markets but are also appearing in the political field, particularly in the UK.  There are greater and greater calls for the end of austerity despite the fact that we do not yet have a balanced Budget year on year, and the lack of a clear majority for our Government means there are likely to be some changes ahead. 

It is nearly 10 years since the financial collapse started and almost a generation of new voters have grown up with austerity listening to the message of “cuts, cuts and more cuts”.  These voters have not seen the effects of rampant inflation, that is the inevitable result of excessive borrowing, and would not feel the effects of aggressive taxation due to their lower earning potential.  As a result of these views and a desperately poor Conservative campaign we now have a hung Parliament and a Government in power only as a result of a “forced marriage” to the DUP.  With such a fine balance of power and a growing sense that austerity may not be the only answer (within and without the Government) this will further increase the uncertainty regarding our economic growth.  If there are challenges to the current Government we could well see another Election and it is not beyond belief at all to consider the prospect of a new Party in power.

Against this backdrop of uncertainty we have seen markets perform reasonably well over the last three months, after they had recovered from the shock of the Election result, and we expect them to continue to do so.  Although Brexit is likely to be one of the most significant economic changes of our generation the business world is not sitting on its hands but is continuing to move and adapt.  As a result we do see positives in the economy alongside the uncertainties.

Both overseas and in the UK there is burgeoning evidence that interest rates may now not need to move quite as early as previously anticipated or indeed quite as far.  We are all aware of the increase in inflation, particularly in the UK, of anything that has to be imported, however there appears to be less strength in the rise of inflation than originally anticipated.  In the UK we have seen a recent drop in the rate of inflation and similar figures are appearing out of America.  One of the ways of dealing with the massive level of global debt is to allow inflation to “run a little” which reduces the “real” value of the debt.  With this in mind together with the lack of great power behind the increases in inflation the likelihood of aggressive interest rate rises is receding.

In the bad old days the stockbrokers used to say “sell in May and go away”. Fortunately, investment management is now a 12 month a year industry – but there may well be quieter times over the coming weeks as the political world takes stock and businesses simply put their shoulders to the wheel and work their way forward.  In this environment your fund managers are earning their keep by managing their various “picks” extremely carefully and we are confident that the funds will continue to provide solid returns.

This article is the opinion of David Wheildon