A UK consumer price index (CPI) reading of inflation of 3%, ahead of forecasts for 2.9%, is likely to be taken negatively by investors.

The slightly higher than expected year-on-year increase in prices, driven by a higher cost for recreational activities, is likely to reinforce concerns that the Bank of England and other central banks will respond to inflationary pressures by dialing back on cheap credit.

This could reduce the flow of cash into the stock market and put pressure on consumer spending, with implications for corporate revenue, profit and cash flow. It would also be particularly impactful for companies with lots of debt as their borrowing costs would increase.

We will discuss these issues in detail in the upcoming issue of Shares out on 15 February. In the meantime investors should keep an eye out for US inflation figures out tomorrow afternoon (14 Feb) UK time.

The recent market correction started in the US, largely driven by its own concerns over rising wages, and a number higher than the 0.3% month-on-month forecast could be taken negatively by the market.


Issue Date: 13 Feb 2018