There is so much going on in the UK at the moment it's hard to know quite what to comment on first. But if you want to look through the noise to the things that should matter to investors, you should concentrate on UK debt levels, inflation and interest rates. John looks at all this in some detail in this week's cover story, but the key point is that almost without exception all UK politicians now believe the UK is "tired of austerity" and wants to see a sharp rise in UK government spending.
We don't know for sure why they believe this, given that working hard to balance the books fast was not one of the options given to the UK voter in the last election. Osborne never actually produced real spending cuts and May's manifesto pretty much abandoned the idea that it was worth the bother. Still, there it is. That's what they believe.
Expect government spending to rise quite fast if the UK sticks with May and very, very fast if she doesn't last the summer. And if government spending rises fast, you should also expect inflation to keep rising at a faster pace than poor Mark Carney would like (being a central banker is even harder than usual when all politicians appear to be mad).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
You could argue that all the uncertainty makes it unlikely that the Bank of England will raise rates, even with inflation picking up. However, not only is it going to be quite hard for Carney to justify holding back if it goes over 3% (his mandate is inflation at 2%), but rates aren't always just about the views of the monetary policy committee. As Peter Warburton of Economic Perspectives says, "holders of conventional gilts should beware the risk of foreign outflows if UK inflation reaches towards 3.5%".
This is a dangerous mix, so it is time to be rather more cautious with your investments than usual and to be sure you are well diversified. With that in mind, I'd be tempted to take some profits on anything that has done well and buy into some of the better multi-asset funds out there. I mentioned RIT on the website a few days ago as a long-term favourite.
Another friend in a crisis has always been Personal Assets Trust, as has its sibling the Trojan Fund. Both are managed by Troy Asset Management. Then there is the Baillie Gifford Managed Fund, which is top-performing, hugely diversified and very cheap, as well as the McInroy & Wood MW Balanced Fund, which is more expensive but has a good long-term record as well.
One thing the history of markets has taught us all is that while focusing your investments in a few areas can be a good way to get make a lot of money if you get it right the only way to be sure you will stay rich over the long term is to spread that money around. Concentrate to get rich. Diversify to stay rich.
-
Annual UK rent has jumped £3,240 since Covid, says ZooplaZoopla says rental costs have risen 27% since 2021, with rental costs far outstripping wages over that period
-
The top stocks in the FTSE 100After a year of strong returns for the UK’s flagship index, which FTSE 100 stocks have posted the best performance in 2024?
-
Beat the cost of living crisis – go on holidayEditor's letter As inflation rages, energy bills soar and the pound tanks, what’s a good way to save money this winter? Go on holiday, says Merryn Somerset Webb.
-
How capitalism has been undermined by poor governanceEditor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
-
Don't be scared by economic forecastingEditor's letter The Bank of England warned last week the UK will tip into recession this year. But predictions about stockmarkets, earnings or macroeconomic trends can be safely ignored, says Andrew Van Sickle.
-
The biggest change in the last 17 years – the death of the “Greenspan put”Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
-
The wolf returns to the eurozone’s doorEditor's letter The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.
-
Things won't just return to normal – that's not how inflation worksEditor's letter You might think that, if inflation is indeed “transitory”, we just need to wait and everything will return to “normal”. But this is a grave misunderstanding of how inflation works, says John Stepek.
-
Car hire and the strangeness of the post-pandemic economyEditor's letter A global shortage of hire cars and unusually high hotel occupancy rates sum up the post-pandemic global economy in a nutshell, says Merryn Somerset Webb, with enhanced demand meeting restricted supply.
-
Why we need to get a grip on our governmentEditor's letter Our government is trying to do too much, enacting policies that are destructive to the private sector. It needs to drop the the feel-good nonsense and create policies that lead to long-term wealth, says Merryn Somerset Webb.
