Bank of England Governor Announces Inflation Rise

The governor of the Bank of England, Mark Carney, has announced that the fall in the value of Sterling will result in a rise of inflation on goods and services, starting with food prices in the next few years.

Mr. Carney spoke at a public roundtable where he announced the rise, and warned that the rise in inflation will hit low-income families, whose cost of living will increase with the rise in prices.

Economists expect inflation to reach 3% by the end of 2017 as the import prices on products including fuel and food rise as the Brexit fallout takes effect. This follows a similar rise in the US, where the core Consumer Price Index for May rose 2.2%. Barclays expects the UK CPI to rise to 2% by the end of 2017.

Inflation is a risk to investors, as investments can become worth less as prices rise whilst returns remain stable.  This is a particular disadvantage of cash investments, as low interest rates mean that a rise in prices will outstrip the interest gains from cash savings and investments. The IMF has cut the growth prospects of the UK economy in the wake of the Brexit vote, down from 2.2 to 1.3% in 2017, whilst Barclays state that there is little prospect of interest rates rising in the near future.

Investment into a share portfolio is a potential investment that can provide returns that mitigate the effects of inflation, although they are a higher-risk proposition. Investment into strongly performing companies in industries and sectors which have a stable cost and pricing base can provide strong returns which protect against inflation.

However, consumer goods companies which can suffer from an increase in costs due to inflationary pressures could suffer pressures upon their profit margin and may be a less stable investment.

As warnings about a rise in inflation become more frequent, it’s important to assess your investment needs and portfolio with the advice of an industry expert. contact us today to discuss your options with one of our qualified advisors.

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