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StagNation

Today is the first of December and minds turn to thinking of Christmas and the delivery of presents by Santa and his team of reindeer. This horned team of stags (can you name all eight of them?) is not what the title of this blog is about. Thinking back to last week’s budget, the revised economic forecasts from the Office for Budget Responsibility (OBR) looked none too promising as the following numbers would suggest:

‘OBR cuts forecasts for UK economic growth from 1.6% to 1.4% in 2018, from 1.7% to 1.3% in 2019, from 1.9% to 1.3% in 2020, and from 2% to 1.5% in 2021.’

With inflation as measured by the UK Consumer Price Index (CPI) running at 3% and forecast to remain elevated (see below), there’s not too much to get excited about even if the growth forecasts are after inflation.

With interest rate changes set to continue being adjusted upwards albeit from extremely low levels (base rates are currently 0.50%), it highlights the reliance on fiscal policy as the main stimulant to economic growth. It remains to be seen whether the tinkering in last week’s budget will generate meaningful economic improvement. Of course a resolution as to what kind of Brexit we may get may change sentiment and improve business certainty. We shall see.

Continuing to avoid investing in UK fixed income which offers yields below inflation unless you take on a lot of interest rate and/or credit risk, seems a sensible investment strategy.