A few weeks ago, we wrote that there was starting to be something of the 1970s about the UK. The sense of deja vu is rising. This week, we learned that Consumer Price Index inflation (the government's favoured measure) is at 2.9%. The Retail Price Index the one the government tells us is deeply flawed, but which they still use to benchmark student loans, rail fares and index-linked gilts is at 3.9%. At the same time, the threat of industrial action is growing.
Theresa May's government is to partly lift the 1% public-sector pay cap (even although taxpayer-funded public-sector compensation remains firmly above the private sector's). This has done her little good. The chair of the Police Federation of England and Wales reckons his members will be "angry and deflated". Three of our biggest unions see a "strong likelihood" of co-ordinated strike action, and Labour leader Jeremy Corbyn won't say whether he would back illegal strikes or not. It is, he says, "a matter for the unions". Weak government, low growth, high debt, persistent inflation and and an aggressive dollop of strike action about to be chucked into the mix. Not encouraging.
On the plus side, it allows us to pluck one near-certainty out from the current confusion: UK wage growth is set to rise. Unemployment is at a 42-year low, workers are irritable, and every employer I talk to tells me they are having trouble hiring. That means they either have to get a lot of robots in very fast indeed (see this week's Briefing, then google "strawberry-picking robot"), or they have to raise wages. The former will happen, but the latter will happen fast. Most economists reckon that UK inflation will soon fall back to the 2% level that the increasingly hapless-looking Bank of England is meant to target, as post-referendum sterling weakness passes. Don't bet on it.
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
For investors, this makes it more vital than ever that your portfolio is as resilient as can be. Don't hold shares in companies that might have to cut their dividends just as you need real income (dividend cover in the FTSE 100 is very low). Don't hold any that are covering up a lack of growth with aggressive accounting or long-term destructive acquisitions (de-merging, focused companies might be better). Don't own any with low levels of pricing power in a global market. And you certainly don't want any with dimwits as managers (just look at the story behind Provident Financial's downfall). See this week's cover story for more on how to avoid market villains.
Finally, whatever the inadequacies of fiat money (inflation and inevitable long-term failure) I have one final near-certainty for you: if you invest in a fund that invests in crypto-currencies, you will be sorry.
-
SIPP holders to get cash warnings and be offered default fundsNews Providers will be required to offer investors a default fund and must warn customers of the inflationary risk of cash savings the regulator has said. What the new rules mean for your retirement pot?
-
Zoopla: Asking price discounts hit a five-year high – is now the time to buy a property?
News Zoopla’s October House Price Index shows sellers are accepting discounts of 5.5% on average to secure a sale – we reveal where homeowners are taking the biggest asking price cuts
-
Beat the cost of living crisis – go on holiday
Editor'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 governance
Editor'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 forecasting
Editor'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 door
Editor'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 works
Editor'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 economy
Editor'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 government
Editor'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.
