“Investors beware of ‘temporary’ slant on inflation figures”, says Bryn Jones, investment manager, Rathbone Ethical Bond Fund.
“As we expected, the Bank of England is again ‘praying’ at the ‘altar’ of the ‘output gap’ in its bid to dampen inflation expectations” says Bryn.
UK consumer price inflation reached a 14-month high to 3.5% from a year earlier, largely on a reversal of the 2.5% cut in VAT. Any rise over the Bank’s 2% target prompts an explanatory letter from the Bank of England to the Chancellor of the Exchequer. The Bank of England expects inflation to slow to 0.9% later this year.
“We remain unconvinced” added Bryn, who has believed for some time that inflationary pressures remain firmly to the upside.
“We suspect that higher inflation risk continues to be underestimated. Not only is the credibility of the Bank of England at stake should inflation not fall back in the manner projected, but this could cause some serious ripples in bond markets. Consequently, we remain short duration in the fund.”
The information contained in this note is for use by journalists and must not be circulated to private clients or to the general public. The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice.
Rathbone Unit Trust Management Limited is authorised and regulated by the Financial Services Authority and a member of the IMA. A member of the Rathbone Group. Registered office: 159 New Bond Street, London W1S 2UD. Registered in England No. 2376568.