Prices: a confidence index

Economists are a little jinxed right now. Whatever they say is likely to happen, the opposite has a funny way of showing up.

The UK economy has been growing steadily following the Brexit vote and the US has been running well despite Donald Trump taking the White House. European data have been improving too. The worries of scores of macroeconomists have been unfounded so far this year.

We didn’t expect a severe recession following June’s referendum, although we still thought growth would slow following a vote to leave. Instead, GDP has expanded faster as British consumption ramped up. Manufacturing has picked up as well, helped no doubt by a much cheaper pound that makes British-made goods more attractive to export. Manufacturing PMIs (confidence and output surveys) hit a three-year high in early May.

There is a flipside, however. The UK imports much more than it exports, which means that higher prices for everything from power to supermarket salami will have a wider and greater impact than the tailwind for some manufacturers. Digging deeper into measures of inflation for producers show there are still a lot of costs that haven’t yet been passed on to retailers and the consumer. Consumers are still feeling relatively confident, but much less so than before inflation jumped rapidly in the last six months. Also, wages have struggled to keep pace with inflation recently. If that continues, it will erode purchasing power and weigh on the country’s mood even more.

Inflation has a large influence on people’s psyche. Typically, UK households get more pessimistic about the future when they expect higher inflation. That makes sense – they can’t buy as much stuff when it gets more expensive. After a period of bargain-basement levels of inflation and interest rates, Britons have responded by boosting credit card spending (currently growing around 10% a year) while the savings rate has slumped from 7% to 3.3% in two years. Contrast that with Japan, where decades of deflation has made Japanese highly dubious of spending, let alone buying company shares. They are a nation raised on the idea that goods become cheaper the longer you wait and that it is better to lend than borrow.

We think that consumer confidence will be pivotal for the UK’s continued recovery from the global financial crisis. To that end, we are watching wage growth and inflation carefully.


1 month

3 months

6 months

1 year

FTSE All-Share





FTSE 100





FTSE 250





FTSE SmallCap





S&P 500





Euro Stoxx










Shanghai SE





FTSE Emerging





Source: FE Analytics, data sterling total return to 30 April

How soon is now?

For all we tease the French about their short working weeks and long retirements, they are much more productive than UK workers. That’s not to say Britons are lazy or incompetent – far from it. UK employees work hard and long, but unfortunately output growth refuses to budge.

On average, workers in the UK take five days to produce what their counterparts in France, Germany and the US do in just four. It seems our friends across the Channel do just fine with their short weeks …

The UK needs investment in infrastructure, education and technology to boost its productivity. Technology is a particularly strong driver of improvements in efficiency. It’s the difference between emails and carbon-copied memos; between an abacus and a computer; between a mechanised production line and one run solely by people.

Our research team’s report How soon is now?  takes a deep dive into disruptive technology that is coming on stream in the next decade and what effects these changes could have on the economy and your investments.

Unfortunately, people are reluctant to embrace new inventions. The familiar has a firm hold until we are completely convinced of an alternative’s worth and safety. We had supersonic air travel in the 1970s, but the Concorde crash in Paris in 2000 snuffed out all appetite for it.

Self-driving cars are being developed in leaps and bounds, but fears about the ramifications of introducing them are never far from the headlines. Similarly, automation of manufacturing is dogged by fears of hollowing out well-paid industrial jobs on the factory line. In many cases, these jobs are dangerous, menial and back-breaking. It makes sense to use machines that are more productive where the work does harm to humans.

Of course, people whose jobs are automated away need help to retrain. And this, while true, cannot help but sound glib. A person’s job is woven deep into their identity, especially when the work is hard and dangerous. Think miners, steelworkers, foresters and soldiers.

Successive governments must continue to encourage technological innovation. But they must also ensure that the dislocated get all the aid they need to continue contributing to society and feel a part of it. Otherwise, the disenfranchisement that is sweeping the globe will only intensify. Technological change is disruptive, but also necessary. Because technology is the future and we cannot turn our back on it.

And we shouldn’t turn our back on people either.

Bond Yields

Sovereign 10-year

Apr 30

Mar 31

















Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
No votes yet