Matthew Read, for Investment Week, 4 August 2023:
The outlook for the UK equity market feels particularly depressed and it is not hard to see why.
Even after June’s better-than-expected inflation figures, core UK inflation remains high, which suggests higher interest rates for longer. Commentators are expecting that the base rate, which at 5.25% is at its highest for over 15 years, is likely to peak around 5.75%.
This would bring even more pain for mortgage borrowers and greater government borrowing costs to an already faltering economy.
Part of the reason inflation has remained high relates to the pandemic. Some workers left the workforce permanently, reducing the talent pool, which has helped sustain higher employment levels and has put upward pressure on wages (regular average seasonally adjusted weekly pay increases are running at about 7.3%, according to the ONS).
Some observers think that wage inflation has not peaked. Above target inflation and consequently higher interest rates are likely to persist for some time. Investors, particularly those in search of income, will have to adjust to this.
Against this backdrop, we have been screening the market for funds that offer a decent yield that have also provided superior long-term total returns, and the infrastructure and renewables sectors stand out as being particularly interesting.
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