St James Place : Upward momentum

Inflation in the UK reached a 31-month high of 1.8% last week, on rising fuel prices and a sharp slowdown in the fall in food prices. Meanwhile, prices paid by UK manufacturers for imported raw materials and fuel rose 20% in January year-on-year. The Bank of England forecast that UK inflation will reach 2.7% next year, although some economists estimate it could hit 3% in 2017. Mark Carney, the governor, confirmed that there would now be no interest rate cuts in 2017.

The rise in inflation increases the challenges for savers unable to find cash rates capable of maintaining the spending power of their money. The latest blow to cash savers contrasted with the findings of the quarterly Dividend Monitor-, which found that headline dividends rose 11.7% in the fourth quarter of 2016: 'Equities therefore show no sign of losing their top spot as the best yielding option among… key asset classes,' the report concluded. In short, dividends have been on the up, and cash returns have been going in the opposite direction.

This week's bulletin also includes:

• Inflation in the UK reached a 31-month high and the Bank of England forecast that it will continue to rise.
• Wall Street completed its longest upward run since 2013, as corporate earnings season began to wind down.
• Unilever firmly rejected a $143 billion bid from Kraft Heinz: the US company has shelved its takeover plans for now.
• Janet Yellen, Federal Reserve chair, said that rate rises would be appropriate in the US over the course of 2017.

View this week's Market Bulletin, which contains thoughts and opinions of St. James's Place and our range of investment managers on the key issues affecting investors.