Why it could pay to bet on the UK
This time last year, things were looking good for the UK. Inflation was rising, but was still deemed “transitory” by a complacent Bank of England, growth was recovering, the labour market was strong, and the pandemic (with hindsight) was already past its peak. A year on, and while the labour market remains strong and Covid-19 is firmly in the rear-view mirror, inflation has surged relentlessly higher, only made worse by Russia’s invasion of Ukraine.
The Bank of England has been very clear that things are no longer as rosy on the economy front – perhaps rather too clear, some might argue. Bank governor Andrew Bailey agreed when asked by MPs last month that he feels “helpless” in the fight against inflation and also warned of the “very real income shock” facing consumers as higher food and energy prices eat into disposable incomes. Suddenly all the talk is of “stagflation” – the toxic combination of rising prices and slowing growth most closely associated with one of the most painful decades ever for investors, the 1970s.
While Bailey’s slightly hopeless
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