Client Update - 7th January 2022

A New Year is with us, yet many of last year’s concerns remain. How will central banks deal with higher than expected inflation, when will interest rates rise in the US and rise again in the UK, will plan B be enough to cope with Omicron now that schools have returned? The answer is simply, we shall have to wait and see.

Central banks guidance in 2021 on transitory (temporary) inflation being insufficient to derail the high levels of liquidity being pumped into the market allowed 2021 to be another positive year for markets and indeed client portfolios. This year we know that we are seeing a tapering in the Quantitative Easing experiment, interest rate rises, and perhaps even a reduction in the balance sheet (debt) of the major central banks. Whilst central banks can of course reverse any decisions that they make, 2022 is a different year and will probably require some nimble portfolio management as we move through it.

The US Federal Reserve (Fed) aims to completely halt its asset purchase programme by the end of March and has issued guidance that this end will coincide with their first, and not last, rate rise in 2022. The UK has already raised interest rates, albeit by a very small amount, and all of this is continuing in the face of the most infectious Covid variant we have seen to date. Omicron is dampening economic growth, despite our Governments resistance to further lockdown measures. It appears that the Bank of England got the timing of their rate rise about right, as the Fed will have to wrestle with higher inflation eroding savings and a further economic slowdown from Omicron if and when they press the button on a rate rise at the end of the first quarter. The Fed seems very dependent on the popular view coming to fruition, that of a gradual reduction in the rate of inflation as year on year energy price rises come out of the system and the global supply chain continues to heal.

Here in our group offices we continue to run a part office based and part home based workforce, in line with Government guidelines and we are now well practised in this. Once the markets have got into full swing next week I shall write more on the outlook for the year ahead, but, for now, may I wish you a happy and prosperous New Year and if you do have any questions, please do not hesitate to be in touch.