Slow Or Fast, UK Interest Rates Are Only Going Up

It could be too late to build inflation protection into your ETF portfolio but you can still rebalance your fixed income in anticipation of policy changes

Jose Garcia Zarate 21 February, 2011 | 12:06PM
Facebook Twitter LinkedIn

If you think there is no worse predicament for a central bank than a severe loss of credibility, then spare a thought for the Bank of England. With UK inflation, as measured by CPI, running at double its medium-term price stability target of 2.0%, and expected to rise even further to around 5.0% in coming months, UK financial market commentators are having a field day questioning the ability of the rate-setting Monetary Policy Committee.

Regular readers of our ETF commentary may not have been excessively surprised by this high inflation landscape in the UK. Some six months ago, in our article Inflation: Dangers Filtering Through UK Economy, we voiced the case for a healthy dose of inflation protection for UK-centric investment portfolios. The rather punchy inflationary dynamics of late have of course been exacerbated by the rise in commodity prices. But at the heart of the UK inflationary problem has always been the weak sterling policy pursued by the BoE since the onset of the financial crisis.

The whole point of hedging is to do so at a reasonable cost before the event one is hedging against shows its ugly face. We are the first to admit that our warning to seek inflation protection six months ago was something of a last call to passengers to get on the train. And so, this leaves us to ponder whether seeking UK inflation insurance now may not only prove a bit futile, but also a cost-ineffective business.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe