UK markets began the year in volatile fashion and “value” names had a brief moment in the sun, before earnings season reminded us all that it was the highest quality businesses that had weathered 2020 best and were set to (generally speaking) consolidate this strength and return to growth in 2021. At the time of writing, the FTSE Index is just 100 points shy of pre-COVID levels and will hopefully continue its steady momentum into 2022.

Inflation and interest rates were top of the worry list for investors in the final quarter, as input costs have risen globally. While central bankers were quick to dismiss high inflation figures as ‘transitory’ at the start of 2021, one-by-one they each conceded that this was not blowing-over painlessly. After wrong-footing bond markets with a clumsy attempt at forward guidance in November, Andrew Bailey, Governor of the Bank of England and now CBE, and his team elected to inch UK rates up by 15bps to 0.25% in December. Alongside this rate increase announcement, the Bank stated that:

‘Consumer price inflation in advanced economies [had] risen by more than expected’

…and ‘Bank staff expect inflation to remain around 5% through the majority of the winter period, and to peak at around 6% in April 2022’

We do not pretend to be able to predict the direction of inflation (and are sceptical the BoE can do so either!) but are pleased to see that the base rate has begun to move higher. If nothing else, this helps to rebuild monetary firepower in the event that the economy needs further support in future and takes the UK one small step away from the dreaded negative rate cycle that the EU appears stuck in. It is also worth taking a moment to appreciate that this is in large part a ‘good’ rate rise reflecting how hard we have all worked to keep the UK economy afloat through the last two years and that rates do not need to be at rock-bottom any more.

Omicron has dealt us all another rotten hand over the Christmas period but the economic hit of each COVID-19 variant has been less and less each time and we have all been forced to adapt. We are optimistic that the UK and wider global economy will continue to recover in 2022 and give an enormous thanks to those people working in medicine, healthcare and all key workers for the tremendous sacrifices they are making for us all.

We wish you all a Happy 2022 and look forward to seeing many of you in person during the months ahead (please no more Zoom!)

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.