Inflation and Interest

Inflation figures are at their highest for almost two years. The recent ONS release for the year to September was 1.0%, up from 0.6% in August, buoyed by rising import pricing. From an unprecedented low post-referendum, the long-end of the UK yield curve has kicked up, responding to higher expectations for inflation going forward. From a low of almost 0.6% in August, redemption yields on 10-year gilts have risen to c. 1.15% in the past month – an outward shift of 0.55%, as investors price in the erosion of fixed income and concern over the Government’s ‘hard Brexit’ rhetoric dampens international demand for UK assets.  Corresponding property yields are tracking out by a comparatively modest 0.25% in many markets, with the spread of prime yields over treasuries offering a lower, albeit above average, premium for risk.