Fisher Investments UK

It appears Mark Carney barely escaped writing a letter to Chancellor of the Exchequer Philip Hammond this week: UK inflation remained at 3.0% y/y in October, exactly one percentage point above the BoE’s target. Whilst we imagine Carney and his typewriter are breathing sighs of relief, headlines aren’t: Most observers still believe high inflation is choking the UK economy, putting the expansion (and UK shares) at risk. History and recent data, however, disagree: Britain’s economy and markets have endured higher inflation in the past, and UK consumers are far more resilient than most believe. As headlines are quick to point out, inflation is at a five-year high. That sentence cuts both ways. Yes, inflation is higher than at any point in the last five years.

Over a year after the UK voted to leave the European Union, UK stocks are humming along, and the economy continues to grow. For investors, there is one obvious lesson: don’t overrate any widely discussed event’s potential market impact, and instead take popular narratives with a grain of salt. But there is also a secondary takeaway: to limit your exposure to any country-specific risk – whether or not it’s overhyped – diversify globally. Diversification is a straightforward investing concept. It is about recognising two things: risk is everywhere, and spreading your money around helps limit exposure to any single thing – be it a country, region, industry, company, trend and so on.