Our Head of Large Cap European Equities looks at the impact conditions in the US will have on the global economy, how things in China might play out, and how all this might affect prospects in Europe
Interest rate rises have driven inflation down. We all hope we are close to the pivot point when banks call a halt to hiking and begin to cut rates. Many commentators say victory means inflation getting close to the 2% target; then we can pivot. But the three-year inflation average in the US and Europe is still 5%; possibly even 7% in the UK. For inflation to come down to 2% more permanently, first it needs to undershoot and stabilise at 1% – probably even lower in the UK given recent performance. This is where policymakers failed in the 1970s. Only during the deep recession of the early 1980s did inflation fall below its historic 10-year rate. Of the three regions, the UK needs the deepest recession to get back to the inflation target. It has already used up its 10-year inflation allowance of 20% over the past three years.
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