What 1% inflation means for investors

Adrian Lowcock, investment director of Architas, said UK investors should remain focused on growing their assets above the rate of inflation. 

He said: “As such cash and indeed many government bonds are no longer offering savers and investors a real return after inflation. 

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“There are still plenty of options with many equities yielding 3 or 4 per cent, while commercial property and infrastructure also offer attractive yields albeit with varying risks attached.”

However Russ Mould, investment director at AJ Bell, said a lot depends on how the Bank of England reacted to developments.

He said: “The yield on the 10-year Gilt is already back above 1 per cent, way higher than its summer lows near 0.5%, and this could start to affect interest rates on debt across the board, from mortgages to corporate bonds, making borrowing more expensive, whether the Bank of England likes it or not.

“From an investment perspective, history shows that a bit of inflation is not a bad thing for stock markets and certainly better than deflation or stagflation. 

“However, if too much inflation causes the Bank of England to raise interest rates or drives government bond yields higher then investors could be lured away from stocks and back toward cash or bonds, removing some of the support given to share prices by the premium yield that is currently available from equities.”