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The Bank of England have accidentally stumbled into the campaign rhetoric of the two would be Prime Ministers this week. There was an expectation that the Bank of England (BOE) would raise interest rates by 0.5% on Thursday this week, which they duly did. It was the additional commentary on higher for longer inflation and the importance of bringing it under control, for which the Bank acknowledged their rate rises could bring about a possible recession over the next 15 months. I imagine this announcement caused consternation in Liz Truss’s camp. The statement from BOE Governor Andrew Bailey suggests prudence is key, whereas the Truss campaign is focusing on tax cuts and increased borrowing to support the economy, at exactly the time the BOE are trying to increase the cost of debt and curb spending. Liz Truss has been pretty vocal this week on the BOE’s failure to foresee and avert the current inflation crisis and has indeed vowed to change the mandate of the Bank should she become the next Prime Minister. It was a different response from Rishi Sunak who took the opportunity to reinforce his opinion that the Truss plan to increase spending whilst cutting taxes would be reckless. Their relative campaigns continue to divide.
It is certainly true as I commented last week that the UK is not as well equipped to deal with inflation as the US, in a post Brexit environment, whilst also being much harder hit by the energy price rises as a result of the conflict in the Ukraine. There is a global demand for the leading companies in the UK, but the UK consumer is currently being unnerved by talk of 13% inflation and increased costs in just about everything, even before the new energy price cap in the 4th quarter.
The difficult market environment in 2022 so far was again evident this week when Chase Coleman’s flagship Tiger Global fund announced losses of over 50% in the first half of the year. These losses were mostly as a result of the heavy fall in technology prices in light of central banks aggressive rate policy, the very sector that had driven the funds spectacular success in the last ten years. They confirmed that whilst lessons had been learnt, they would continue to favour the same investment strategy that has done so well for them over the last 20 years. The market has shown in the last month that should central bank rhetoric soften, should the news change, then there is certainly a tremendous recovery opportunity due at some point. For our part, we will continue to invest sensibly, based on the world as we see it and as always, should you have any questions, please do not hesitate to be in touch. I hope you have a lovely weekend.