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Emily’s exchange: Can buying British combat inflation?

I try to buy British whenever I can. I haven’t done this because I want to avoid the impact of exchange rates, but purely because I like to support local businesses. This week some British brands have said that they won’t be impacted by the falling value of sterling, but is it possible to buy 100% British? If your flowers or food is wrapped in plastic, or your British goods travel any distance, they will be impacted by the changing price in oil; however hard you try, in our day-to-day lives we are repeatedly exposed to global markets.

This week inflation was in the headlines as the consumer price index hit 1% for September, the highest level in two years. Whilst ‘Marmite gate’ has seemingly been resolved, there are now debates about Kit Kats; what we can’t avoid is that the cost of our shopping basket is about to change. This increase in inflation was largely attributed to the rising price of oil and also the price of women’s clothing. There is often an increase in the price of clothing in September as the summer sales end, but the rising price of oil is interesting. Oil is priced in US dollars and since January this year it has gone up by 38%, when that’s converted into pounds that rise is 69%. The fall in the value of sterling is having a real impact which is why a globally diversified investment portfolio has never been more important.

There were announcements from the European Central Bank as Mario Draghi hinted that the bond purchase programme could be extended to avoid an abrupt end to the quantitative easing. This weakened the Euro slightly and served as a reminder of the challenges that the central banks face. We have low interest rates and bond buying around the world, both the European Central Bank and the US Federal Reserve are starting to talk about normalising policies, but whilst growth is weak when is the appropriate time to do this? As markets react to these announcements it reminds us of the difficult low-interest rate environment that savers are facing.

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Whilst I would love to end on a positive note, I unfortunately need to tell you about the deterioration of the UK public finances. Tax revenues are not flowing in to the treasury at the rate that was hoped for. Tax revenues function as a good indicator of economic activity, if tax revenues are rising, growth is likely to be rising. Weaker public finances could limit the Chancellors ability to increase infrastructure investment, which is interesting to note ahead of next month’s Autumn Statement. This adds further noise to the UK investment environment making global diversification all the more important.

If you have any questions on this week’s topics, or anything else you have seen in the financial news, please get in touch. This column only works if it helps you.

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