Investors have traditionally flocked to gold and other commodities during periods of high inflation, but with the recent spike already priced in, is such a hedge necessary? UK inflation increased to 2.5% in June, ahead of the expected 2.2% forecast by analysts and a leap from the 2.1% recorded for May. At 2.5% it is also the highest level it has reached since August 2018. The drivers behind the rise, according to the Office for National Statistics, were transport costs and increased prices for clothes, food and footwear. Companies have also faced challenges with stock and staffing levels because of the pandemic. The UK’s inflation uptick followed a similar scenario in the US, where inflation rocketed to 5.4% – way ahead of expectations. Commentators point out that markets are still supported by central banks putting more money in and even with all the ‘tapering’ talk, it is anticipated that the amount of liquidity central banks will pump into markets will remain high, with another $1.5trn likely before the end of 2021. For investors the key lies within the real yield. There will be good opportunities to ‘buy the dip’ in credit markets – most likely in high yield. Despite inflationary concerns across markets, investors are yet to make tangible changes to their portfolios, according to trading platform Stake. A snap survey of its international investors revealed just 20% had made changes to their portfolio in response to the jump in inflation figures, while 55% said they don’t consider it to be a threat to their current portfolio. While inflation is a factor investors are paying close attention to, the market is seeing a considered and fairly strategic response, with a number of investors looking for ways to leverage the opportunity that inflation could present. For example, the tech sector enjoyed a massive year in 2020, frequently dominating Stake’s most-traded stocks. However, the value of buy trades has decreased in H1 2021 with some of the volume appearing to shift into sectors such as mining and materials, that have historically performed well during periods of higher inflation.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of July 2021 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.