Although inflation is declining slightly throughout the Western world, it remains particularly persistent in the United Kingdom.
For March, it fell well but still reached 10.1% (against 10.4% the previous month). This figure shows that a slow inflation decline occurred after the 11.1% peak in October. But it needs to be faster to reassure the authorities, all the more. Hence, as the prices of essential goods and services continue to soar: the cost of food and non-alcoholic beverages increases by nearly 20% over one year, electricity rises by 66,7%, and gas by 129%.
While the euro area and the UK face similar challenges, UK inflation remains higher and will likely be even more difficult to contain for two different reasons.
The first is the fact that, following the brief (and disastrous) transition of Liz Truss to the control of the country’s destinies, the budgetary and fiscal room available to London has been eroded, and the authorities have had to shorten the period of support for households and businesses.
Second, while employment markets and supply chains are under intense pressure in the Eurozone, this phenomenon is amplified in Great Britain by the country’s exit from the European Union, which deprives the government of once abundant and cheap labour from the continent and forces British companies to overhaul their supply chains.
So the U.K. is going to have a tough 2023. On the other hand, companies listed in London account for the overwhelming majority of their turnover abroad. They will therefore be able to outperform their home market. So we continue to buy UK equities in our portfolio.