Economy

Rishi Sunak, the UK prime minister, has declared that “confidence is returning” to the British economy after new data showed it rebounded by more than expected in January.Gross domestic product rose 0.3 per cent in January, following a 0.5 per cent contraction the previous month, the Office for National Statistics said on Friday.The improvement was driven by growth in the services sector, according to the official statistics published ahead of the Budget next week. The expansion was higher than the 0.1 per cent forecast by economists polled by Reuters. The services sector rose 0.5 per cent, propelled by education, transport and storage, and human health activities.Sunak, speaking to journalists ahead of a UK-France summit in Paris, was upbeat on the prospects for the economy ahead of the Budget.“I think the underlying fundamentals of the economy are strong,” he said, citing recent data from purchasing managers and the construction sector.“They’re all showing encouraging signs that things are better than people feared, that sentiment is improving, confidence is returning and that is partly because of the plan we have put in place.”

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Jeremy Hunt, chancellor, will present a Budget next week that will focus on stability and maintaining downward pressure on inflation. There will be only limited room for big tax giveaways.Friday’s GDP figures add to signs of economic resilience seen in recent data and raise expectations that the UK will avoid a deep recession.“Our hunch is that there will still be a recession, but that recession may be smaller, shallower and commence later than we had initially envisaged,” said Ruth Gregory, economist at Capital Economics.The higher than expected growth will reinforce expectations of a 25 basis point rate increase at the Bank of England’s next Monetary Policy Committee meeting on March 23.Commenting on the data, the chancellor said the UK economy had “proved more resilient than many expected”. He added that next week he would “set out the next stage of our plan to halve inflation, reduce debt and grow the economy”.The Budget “could have a significant impact” on the UK’s near-term outlook said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales. “While extending energy support will provide some relief to struggling households, aggressive tax rises would risk eliminating any lingering momentum from the economy,” he added.Despite the uptick in growth in January, output was still 0.2 per cent below its level in February 2020 and unchanged from January 2022, reflecting the negative impact of high inflation and rising interest rates on household finances.The UK is the only G7 economy that has not yet recovered to pre-pandemic levels. In the final three months of 2022, the US economy was 5.1 per cent larger than in the fourth quarter of 2019, before the first Covid-19 restrictions were put in place; the eurozone’s was 2.4 per cent bigger in the same period.Darren Morgan, ONS director of economic statistics, said that the main drivers of January’s growth “were the return of children to classrooms, following unusually high absences in the run-up to Christmas, the Premier League clubs returned to a full schedule after the end of the World Cup and private health providers also had a strong month”. He added that the partial recovery of postal services after strikes in December also helped boost output.However, construction fell 1.7 per cent in January, which the ONS attributed to heavy rain and economic uncertainty leading to cancellations and lower demand, particularly in the housing sector.Manufacturing production also dropped by 0.4 per cent in January and was down 5.2 per cent compared with the same month last year. This showed “some underlying weakness as a result of high inflation and high interest rates”, said Gregory.

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Money market funds invest in highly liquid near-term instruments such as cash and short term debt securities. So far this year, investors have put $192 billion into cash, adding $18.1 billion in the week to Wednesday, BofA said. They invested $68.1 billion in cash a week earlier, more than at any time since the depths of the pandemic in 2020. Market expectations for further rate hikes from the U.S. Federal Reserve, which have sent U.S. yields higher, have also made money market funds more attractive. The yield on six-month U.S. Treasury bills reached 5.34% on Tuesday, its highest since 2006.Elsewhere, there were weekly inflows to bond funds of $8.2 billion, and outflows from equities of $500 million and from gold of $4 million, according to the report. Japan equity funds saw largest outflow ($3.0bn) since April 2018, according to BofA, a reversal given Japanese stocks have been in favour with foreign investors in recent weeks. BofA also warned that the rapid increase in global interest rates, and market pricing for further hikes have generated what they call “crashy vibes of March”.”(There are) so many potential catalysts for a systemic deleveraging event that sparks policy panic/end of Fed tightening; … and investors must be ready at that moment to deploy cash in new leadership assets which outperform in era of higher inflation,” they said.These “vibes” could worsen unless there is a soft U.S February payrolls later on Friday, BofA said. The most recent sign of stress in financial markets was sharp tumbles in bank stocks around the world on Thursday and Friday, after Silicon Valley Bank, which lends to the U.S. tech sector, including to start-ups, was forced to raise capital to shore up its balance sheet. More

New energy sources to replace oil and natural gas have been easier to find than kicking the dependency on Rosatom, the state-owned nuclear superstore.The pinched cylinders of Russian-built nuclear power plants that dot Europe’s landscape are visible reminders of the crucial role that Russia still plays in the continent’s energy supply.Europe moved with startling speed to wean itself off Russian oil and natural gas in the wake of war in Ukraine. But breaking the longstanding dependency on Russia’s vast nuclear industry is a much more complicated undertaking.Russia, through its mammoth state-owned nuclear power company, Rosatom, dominates the global nuclear supply chain. It was Europe’s third-largest supplier of uranium in 2021, accounting for 20 percent of the total. With few ready alternatives, there has been scant support for sanctions against Rosatom — despite urging from the Ukrainian government in Kyiv.For countries with Russian-made reactors, reliance runs deep. In five European Union countries, every reactor — 18 in total — were built by Russia. In addition, two more are scheduled to start operating soon in Slovakia, and two are under construction in Hungary, cementing partnerships with Rosatom far into the future.For years, the operators of these nuclear power plants had little choice. Rosatom, through its subsidiary TVEL, was virtually the only producer of the fabricated fuel assemblies — the last step in the process of turning uranium into the nuclear fuel rods — that power the reactors.Even so, since the invasion of Ukraine in February 2022, some European countries have started to step away from Russia’s nuclear energy superstore.The Czech Republic’s energy company, CEZ, has signed contracts with Pennsylvania-based Westinghouse Electric Company and the French company Framatome to supply fuel assemblies for its plant in Temelin.Finland canceled a troubled project with Rosatom to build a nuclear reactor and hired Westinghouse to design, license and supply a new fuel type for its plant in Loviisa after its current contracts expire.“The purpose is to diversify the supply chain,” said Simon-Erik Ollus, an executive vice president at Fortum, a Finnish energy company.The Leningrad Nuclear Power Plant near St. Petersburg, Russia. Rosatom, a Russian company, dominates the global nuclear supply chain.Sezgin Pancar/Anadolu Agency via Getty ImagesBulgaria signed a new 10-year agreement with Westinghouse to provide fuel for its existing reactors. And last week, it moved ahead with plans for the American company to build new nuclear reactor units. Poland is about to construct its first nuclear power plant, which will feature three Westinghouse reactors.The State of the WarRussian Strikes: Moscow fired an array of weapons, including its newest hypersonic missiles, in its biggest aerial attack on Ukraine in weeks, knocking out power in multiple regions.Bakhmut: Even as Ukrainian and Russian leaders predicted that the fall of the city could open the way for a broader Russian offensive, the U.S. intelligence chief said that the Kremlin’s forces were too depleted to wage such a campaign.Nord Stream Pipelines: The sabotage in September of the pipelines has become one of the central mysteries of the war. A Times investigation offers new insight into who might have been behind it.Slovakia and even Hungary, Russia’s closest ally in the European Union, have also reached out to alternative fuel suppliers.“We see a lot of genuine movement,” said Tarik Choho, president of nuclear fuel unit at Westinghouse, adding that the Ukraine war accelerated Europe’s search for new suppliers. “Even Hungary wants to diversify.”William Freebairn, senior managing editor for nuclear energy at S&P Commodity Insights, said Russia’s march into Ukraine last year in some ways marked “a sea change.”“Within days of the invasion,” he said, “just about every country that operated a Russian reactor started looking for alternate supply.”In Ukraine, serious efforts to chip away at Russian nuclear dominance began in 2014 after President Vladimir V. Putin of Russia sent troops to occupy territory in Crimea and the eastern Donbas region. Ukraine, whose 15 Soviet-era reactors provided half the country’s electricity, signed a deal with Westinghouse to expand its fuel contract.It took roughly five years between the start of the design process and the final delivery of the first fuel assembly, according to the International Energy Agency.Ukraine “blazed a commercial trail,” Mr. Freebairn said. In June, Ukraine signed another contract with Westinghouse to eventually provide all its nuclear fuel. The company will also build nine power plants and establish an engineering center in the country.Technicians in a nuclear plant in Mochovce, Slovakia, last year. Slovakia is among the European countries seeking nuclear fuel suppliers other than Russia.Radovan Stoklasa/ReutersStill, a worldwide turn away from Russia’s nuclear industry would be a slog: The nuclear supply chain is exceptionally complex. Establishing a new one would be expensive and take years.At the same time, Rosatom has proved uniquely successful as both a business enterprise and a vehicle for Russian political influence. Much of its ascendancy is due to what experts have labeled a “one-stop nuclear shop” that can provide countries with an all-inclusive package: materials, training, support, maintenance, disposal of nuclear waste, decommissioning and, perhaps most important, financing on favorable terms.And with a life span of 20 to 40 years, deals to build nuclear reactors compel a long-term marriage.Russia’s tightest grip is on the market for nuclear fuel. It controls 38 percent of the world’s uranium conversion and 46 percent of the uranium enrichment capacity — essential steps in producing usable fuel.“That’s equal to all of OPEC put together in terms of market share and power,” said Paul Dabbar, a visiting fellow at the Center on Global Energy Policy at Columbia University, referring to the oil dominance of the Organization of the Petroleum Exporting Countries.As with oil and natural gas, the cost of nuclear fuel supplies has risen over the past year, putting more than $1 billion from exports into Russia’s treasury, according to a report from the Royal United Services Institute, a security research organization in London.The American nuclear power industry gets up to 20 percent of its enriched uranium from Russia, the maximum allowed by a recent nonproliferation treaty, according to the International Energy Association. France imports 15 percent. Framatome, which is owned by state-backed nuclear power operator, Électricité de France, or EDF, signed a cooperation agreement with Rosatom in December 2021, two months before Russia’s invasion, that is still in effect. Framatome declined to comment.The control room of a nuclear power plant in Paks, Hungary, in 2019. Two Rosatom nuclear plants are under construction in Hungary.Tamas Soki/EPA, via ShutterstockAnd even with the slate of new fuel agreements in Europe with non-Russian sources, deliveries won’t begin for at least a year, and in some cases several years.Around a quarter of the European Union’s electricity supply comes from nuclear power. With pending climate disaster prompting a worldwide push to decrease the overall use of fossil fuels, nuclear energy’s role in the future fuel mix is expected to increase.Still, analysts argue that even without formal sanctions, Russia’s position as a nuclear supplier has been permanently compromised.At the height of the debate in Germany last year over whether to keep its two remaining nuclear power plants online because of the war, their reliance on uranium enriched by Russia for the fuel rods emerged as one of the arguments against extending their lives. The last two reactors are to be shut down next month.And when Poland’s Council of Ministers approved the agreement in November for Westinghouse to build the country’s first nuclear power plant, the resolution cited “the need for permanent independence from energy supplies and energy carriers from Russia.”Mr. Choho at Westinghouse was confident about the company’s ability to compete with Rosatom in Europe, estimating that it eventually could capture 50 to 75 percent of that nuclear market. Westinghouse has also signed an agreement with the Spanish energy company Enusa to cooperate on fabricating fuel for Russian-made reactors.A nuclear power plant in Wattenbacherau, Germany, last year. The country’s last two reactors are to be shut down next month.Laetitia Vancon for The New York TimesBut outside the European Union and United States, in countries where support for Russia’s government has held up, Rosatom’s one-stop shopping and financing remain enticing. Russian-built reactors can be found in China, India and Iran as well as Armenia and Belarus. Construction has begun on Turkey’s first nuclear power plant, and Rosatom has a memorandum of understanding with 13 countries, according to the International Energy Association.As a new report in the journal Nature Energy concluded, while the war “will undermine Rosatom’s position in Europe and damage its reputation as a reliable supplier,” its global standing “may remain strong.”Melissa Eddy More

Both the Bank of England and the Office for Budget Responsibility have forecast a five-quarter recession beginning in the first quarter of 2023, but the data has so far defied expectations.
The U.K. remains the only country in the G-7 (Group of Seven) major economies that has yet to fully recover its lost output during the Covid-19 pandemic.

City workers in Paternoster Square, where the headquarters of the London Stock Exchange is based, in the City of London, UK, on Thursday, March 2, 2023.
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LONDON — The U.K. economy grew by 0.3% in January, official figures showed on Friday, exceeding expectations as it continues to fend off what economists see as an inevitable recession.
Economists polled by Reuters had projected a 0.1% monthly increase in GDP. GDP was flat over the three months to the end of January, the Office for National Statistics said.

“The services sector grew by 0.5% in January 2023, after falling by 0.8% in December 2022, with the largest contributions to growth in January 2023 coming from education, transport and storage, human health activities, and arts, entertainment and recreation activities, all of which have rebounded after falls in December 2022,” the ONS found.
Production output fell by 0.3% in January after growing 0.3% in December, while the construction sector dropped 1.7% in January after flatlining the previous month.
The U.K. economy showed no growth in the final quarter of 2022 to narrowly avoid a recession — commonly defined as two quarters of negative growth — but shrunk by 0.5% in December.
The U.K. remains the only country in the G-7 (Group of Seven) major economies that has yet to fully recover its lost output during the Covid-19 pandemic. The ONS said Friday that monthly GDP is now estimated to be 0.2% below its pre-pandemic levels.
Both the Bank of England and the Office for Budget Responsibility have forecast a five-quarter recession beginning in the first quarter of 2023, but the data has so far exceeded expectations.

Despite the better-than-expected January print, economists still broadly believe activity is on a downward trajectory, as high inflation eats into household incomes and business activity.
U.K. inflation slowed to an annual 10.1% in January, continuing to shrink after hitting a 41-year high of 11.1% in October but staying well above the Bank of England’s 2% target.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said that the “modest” January rebound suggests the economy is still on a “downbeat path.”
“We’re likely to continue flirting with recession throughout much of 2023, as high inflation, tax rises and the lagged effect of rising interest rates shrinks consumer spending power, despite a boost from easing energy costs,” Thiru said.
Finance Minister Jeremy Hunt will deliver the government’s budget on Wednesday and is expected to announce further measures to manage the country’s cost of living crisis.
“The Spring Budget could have a significant impact on the U.K.’s near-term growth prospects. While extending energy support will provide some relief to struggling households, aggressive tax rises would risk eliminating any lingering momentum from the economy,” Thiru said.
Tom Hopkins, portfolio manager at BRI Wealth Management, noted that monthly figures are difficult to read at the moment, given distortions over the last six months — such as the funeral of Queen Elizabeth II and the World Cup — which partially affected consumer services.
“The underlying trend in the economy appears to be one of gradual contraction, thanks in part to an ongoing downtrend in retail spending,” he said. “We’re expecting a technical recession in the UK in the first half of this year, albeit one that’s not as bad as first feared.”

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After a blockbuster opening to the year, economists expect the February data to show the return of a gradual slowdown in hiring.After an explosion in job growth at the start of the year, new data on Friday will show whether employers moderated their hiring in February — and whether any slowdown was enough to fundamentally upend the labor market’s momentum.Forecasters estimate that the economy added 225,000 positions last month, which would constitute a return to a gentle downward trend that January interrupted with an unexpected jump of 517,000 jobs. Labor Department surveyors have struggled to account for wildly varying seasonal factors, as well as whiplash from the pandemic, which is why revisions of data for December and January will be closely watched.On the surface, employment growth has reflected scant impact from a series of interest rate increases as the Federal Reserve works to contain inflation. Although goods-related industries have faded as consumers shift their spending back to traveling and dining out, backed-up demand and a reluctance to let go of scarce workers have prevented mass layoffs.And so far, the sharp cuts that have been announced in the technology industry haven’t spread widely.“There are sectors of the economy that have not recovered to prepandemic levels — especially leisure and hospitality — and they don’t care about higher interest rates,” said Eugenio Alemán, chief economist at the financial services firm Raymond James. “We have a scenario where the most interest-rate-sensitive sectors have already contracted, mainly housing, and those sectors have not been able to bring down the rest of the economy.”Analysts broadly expect the data to show little if any change in the nation’s unemployment rate, which last month reached a half-century low of 3.4 percent. Americans left the work force in droves at the outset of the pandemic and have been slow to return, helping to keep the job market exceptionally tight — there were still nearly two jobs for every unemployed person in January, the Labor Department reported Wednesday.Wage growth, which has been the Federal Reserve’s primary concern, is forecast to have sped up on a year-over-year basis, while remaining below last year’s blistering high.Since January, the persistent strength of the labor market appears to have fueled a renewed acceleration of economic indicators such as retail sales, as consumers continue to spend down piles of cash that accumulated during the pandemic. Even the housing market has recently shown signs of unfreezing, with new-home sales picking up as mortgage rates sank slightly (though they bounced back up in February).The brighter tenor of the data flow has prompted Fed officials — including Jerome H. Powell, the chair, during two days of testimony this week on Capitol Hill — to warn they may have to push interest rates higher than anticipated to suppress prices. More

US jobs growth is expected to have moderated in February from the previous month’s breakneck pace, but remain elevated enough to keep pressure on the Federal Reserve to reconsider bigger interest rate increases.The world’s largest economy is forecast to have added 225,000 jobs last month, less than half of January’s whopping 517,000, but still well above what US central bank officials consider in line with easing price pressures. Those gains would lead to the unemployment rate hitting a multi-decade low of 3.4 per cent.Wage growth, meanwhile, is forecast to have again increased 0.3 per cent from January, matching the previous monthly uptick in average hourly earnings. On a year-over-year basis, it is set to have jumped 4.7 per cent.February’s report, due to be released by the Bureau of Labor Statistics at 8:30am Eastern Time, is one of the most consequential data releases ahead of the Fed’s next policy meeting on March 21-22.In congressional testimonies this week Fed chair Jay Powell said the central bank would be scrutinising the report — alongside inflation and retail sales figures, among others, due next week — in order to determine whether to resume more aggressive rate rises after a deluge of unexpectedly strong data.“They’re going to be very important in our assessment of the higher readings that we have very recently received and of the overall direction of the economy and of our progress in bringing inflation down,” he said on Wednesday, of the data, stressing that no decision had yet been made. Powell added that “the ultimate level of interest rates is likely to be higher than previously anticipated”.

In February, the Fed called time on jumbo rate rises and delivered a more traditional quarter-point increase, having repeatedly moved in half-point and three-quarter point intervals last year. At the time Powell justified the smaller rate rise by arguing that it would “better allow” officials to track progress in their goal to tame inflation and said the “disinflationary process” was under way.But persistent labour market tightness and renewed consumer strength since then have upended expectations about the path forward for policy. Any inkling that January’s data was not a one-off will probably prompt the Fed to opt for the larger increase, economists warn.According to the CME Group, the odds of a half-point rate rise at this month’s meeting stand at nearly 70 per cent. More

US energy secretary Jennifer Granholm sought to ease clean energy trade tensions with the EU, saying the Biden administration was seeking to build supply chains with “countries whose values we share”. The US and EU were in talks about a free trade-style deal around clean technology, she said, which could soothe European anxieties that the US’s $369bn in new subsidies for low-carbon energy would suck capital across the Atlantic. “That’s one of the discussions that I know the administration is having,” Granholm told the Financial Times in an interview in Houston on Thursday. She added: “We don’t want to see any trade rivalry. And we’re in discussion with our EU counterparts about how to make sure we can do this in a way that lifts all.” Granholm’s comments came hours after the EU relaxed state aid measures, allowing member states to match subsidies if there is a risk of investment being diverted from the bloc.The US’s Inflation Reduction Act, passed last year, includes $369bn worth of tax credits, loans and grants designed to stimulate clean technology investment and meet President Joe Biden’s goal of halving US carbon emissions by 2030.But the scale of subsidies has prompted fears of a new trade war, with President Emmanuel Macron of France warning that the IRA threatened to “fragment the west”.Europeans have also been alarmed by what they perceive to be an aggressive push by US states to lure investment from the EU, including hefty subsidies for companies moving manufacturing to the country. Last month, John Podesta, the Biden administration official in charge of implementing the IRA law, said in an interview with the FT that the US would make “no apologies” for prioritising American jobs as it tried to take control of global clean energy supply chains. On Friday, Biden and Ursula von der Leyen, the European Commission president, are expected to discuss co-operation over the critical mineral supply chain at a White House meeting.

Granholm said the US was seeking to build a “backbone” of manufacturing to reverse decades of deindustrialisation and break dependence on China. But allies would not be excluded.“We want to ‘friend-shore’ some of that — we want to have a supply chain that is robust with our allies and with countries whose values we share.“This is another reason why we’re having those discussions with our allies to make sure that we are able to proceed apace and still build up that backbone.” While the IRA has already brought an influx of projects and spending commitments, some clean tech developers have warned that the effort to eliminate China from supply chains will slow down deployment.Solar installations in the US in 2022 fell for the first time since 2018 after investigations into tariff-dodging and seizures of products linked to forced labour in China curtailed the supply of modules.China also dominates processing of lithium that will be needed as the US tries to electrify its transportation system with battery-powered cars. The US may still need to import lithium by 2030, Granholm conceded, “but not from China . . . at least the goal is not to do it”.Additional reporting by Amanda Chu in New York More

Are you a baby or do you wear big-boy pants? When it comes to our money, our guardians aren’t sure. On one hand, governments force us via the tax system to put some pennies aside throughout our working lives. We cannot be trusted not to blow them on sweets.On the other hand, in the UK for example, we can withdraw a whole quarter of our pensions tax free at age 55 — three decades before most of us die. Book that cruise! We can also use the money to play with dangerous 300 per cent inversely geared emerging market ETFs.Regulators are confused, too. Back when I wrote research for banks, I had to ensure my content was comprehensible even to retail clients who could barely read. Meanwhile, kids everywhere were allowed to tip their entire piggy banks into crypto.I was pondering this recently as ex-colleagues were discussing inflation-protected bond funds on our WhatsApp group. You can hardly get more grown-up (or sad). Yet we struggled to understand much of the small print. What hope do inexperienced savers have?It’s a good time to ask as global inflation remains elevated. British readers also have until the end of the month to invest their annual Isa allowance. Should we all be spending our lunch money on inflation-protected bonds?One might have asked this in 2021, too. Inflation fears were building. Geopolitical ones ditto. Low-risk government bonds surely made sense, particularly if you could shield the coupons and principal from losses in real terms.Indeed, Treasury inflation-protected securities (Tips) — or index-linked gilts in the UK — were being sold as the risk-free asset of choice. In the US, almost double the money poured into Tips funds in the first three quarters of 2021 than the year before, according to Lipper data.In the UK, meanwhile, so-called “linker” funds had attracted almost half a billion pounds of additional net assets through 2021, reckons Morningstar. By the second half of the year, Google searches for index-linked bonds were twice as high as usual.What happened next? Tips lost between 10 and 30 per cent of their value over 2022, depending on the securities they held. UK index-linked funds did even worse. You could hear the wailing. It’s so unfair! Inflation went up, just as we thought it would!This was no mis-selling. But I’ll bet my horse that in a rush to hedge against rising consumer prices, investors paid way more attention to the term “inflation-protected” in the name of these funds than the word “bond”. Therein lies the problem. Tips and the like are essentially two things at once. They do indeed help protect against inflation by adjusting the money that investors get back when the bond expires. Coupons are similarly tweaked.

Stuart Kirk’s holdings, Mar 10 2023Vanguard FTSE 100 ETFBlackRock Sterling Liquidity FundBlackRock World ex UK Equity IndexiShares MSCI EM Asia ETFVanguard FTSE Japan ETFTotalAssets under management (£)126,807113,999115,76350,57752,807459,953Weighting27%25%25%11%11%Any trades by Stuart Kirk will not take place within 30 days of being discussed in this column

But they are still bonds. Which means prices fall when yields go up because coupon payments are fixed (notwithstanding the inflation adjustment). Therefore, if there is a big rise in interest rates, the yield the bond offers is less attractive and the whole caboodle falls in value.In other words, these bonds are exposed to moves in real interest rates, which last year skyrocketed. UK funds are especially sensitive because they tend to own bonds which don’t mature for up to 20 years, more than double the average duration of Tips funds.It is these long maturities which make inflation-protected bonds so attractive to pensions and insurers, who need to cover liabilities far into the future. But remember that the main adjustment for inflation happens when these bonds redeem. This means that, in the short term, the protection doesn’t help much.The trouble is that inflation expectations are discounted in prices immediately. Which is why funds with long durations were hammered last year. Everyone feared that central banks had left it too late to bring prices back under control.What now? These things have fallen a lot. The way I look at them is to first ask whether I’m willing to lose my shirt with a punt on interest rates. (If not, as it happens, there are products out there called “break-even” inflation funds. These allow me to make a call on inflation without the rate risk.)

I digress — and there are better inflation hedges out there anyway. But that’s another column. So the next question is: how much do rates need to rise before I lose money? To answer this, compare the yield on a protected fund with an equivalent non-protected one.If they both have a duration of say, 10 years, and the gap is 3 per cent, this “break-even rate” suggests the market is pricing in 3 per cent annual inflation to 2033. In other words, you are forgoing 3 per cent of yield to be fully reimbursed when the bond expires.Buy the protected fund if you think inflation will be more than 3 per cent. If you think lower, pick the vanilla fund. This assumes all else is equal. It won’t be. Thus you must also decide if real interest rates are heading up or down. Are rates going to rise or fall more or less than inflation will rise or fall?I am a cynical sod when it comes to central banks. My money is on them bottling it and thus real rates are probably near their peak. Despite Jay Powell’s hawkish testimony this week, Wall Street will put pressure on the Federal Reserve not to raise rates too much — as it always does.And in the UK, where we’re still considered babies when it comes to housing, a risk in my view is that the Bank of England folds in the face of weaker property prices and won’t increase rates enough. I think you’ll see some inflation-protected bonds in my portfolio soon. The author is a former portfolio manager. Email: [email protected]; Twitter: @stuartkirk__ More