Robust economy to push inflation up to 5pc in 2017

Inflation in the UK and US is predicted to reach 5% in 2017, as a result of economic recovery, interest rate and commodity price rises, according to a new report.

Managing Partners Group (MPG), the international asset management firm who published the report, anticipates lower inflation of between 2.5% to 3.0% in the Eurozone in 2017.

The Bank of England’s Monetary Policy Committee recently announced that UK inflation rose to 1.2% in November, and predicts it will hit the 2% target in the first half of 2017, which is quicker than originally expected.

This predicted surge in inflation has led some experts to believe that the Bank of England will now be under pressure to raise interest rates sooner rather than later.

Jeremy Leach, chief executive officer at MPG, who believes inflation in the UK will be effected by the robust economy, house price and rental increases, also commented on the situation in the US:

“Reflation is expected to be a strong theme in the US in President Trump’s first year and the Fed rate will likely rise in response to 1.25% by the end of 2017. While inflation is usually viewed as the nemesis of central banks, it will actually be a welcome solution for reducing the real value of the enormous debt in Europe.”

However, Leach didn’t rule out the possibility of a “significant event in 2017 that will knock markets”, citing an economic event or a unexpected result from the forthcoming elections in Germany, France and The Netherlands.

“Once again, investors will be looking for assets offering steady income, so short-term debt and asset-backed securities (ABSs) offering 5-6% over three to five-year terms will be attractive because of the inflation-proof returns that they offer,” said Leach.

MPG highlighted that the market for asset-backed securities is “set to grow exponentially” in Europe over the coming years, so as to satisfy growing demands of businesses in three main industry sectors: SMEs looking at expansion, operations in the FinTech sector and alternative fund managers looking to raise extra capital without creating new shares or units in their products.

 

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