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Brian Tora: Immigration and inflation affect investment outlook

A growing population will affect the UK’s economy over the long term while inflation is an issue for the short term

The information recently released from the 2011 population census made interesting reading. It would seem that the population of this sceptred isle has been growing by rather more than we thought.

As we probably have a good handle on births and deaths, this rather suggests we have not been counting all the people who have come into the country from overseas. It certainly set some tongues wagging.

As it happens, immigration is not necessarily a bad thing. We have a benign(ish) record of welcoming people from abroad to our shores. The Jewish immigrants that fled the Nazi scourge were replaced by more incomers from the Indian sub-continent and they are even now finding Eastern Europeans taking over in parts of London that they made their home. And many of the skills these new workers import are welcome.

Indeed, immigration is believed to be good for the economy. It has certainly helped the United States in the past. But this confirmation that the level of immigration has been understated for some time will doubtless fuel the arguments that they take jobs from the indigenous population and add to the overcrowding in this very finite land of ours.

But, as is so often the case, the devil is in the detail contained within this initial report from the Office of National Statistics. There are now 430,000 people over the age of 90 in this country. This has clear implications for the cost of providing care while the fact that there are an extra one million 20-somethings around today suggests that it is this sector of the population most affected by immigration.

Does all this have implications for investors? Undoubtedly it does but whether for good or ill is less easy to determine. On the one hand, more workers in the UK should make the task of reducing the debt level relative to GDP easier.

On the other, the financial strain of coping with a growing elderly population suggests austerity could be a word oft used for some time to come. And the fact that there could be more than 80 million living here in less than 50 years time makes me wonder where they are all going to live.

The other interesting collection of statistics that emerged last week demonstrated that inflation was falling faster than had been anticipated. With the CPI down to 2.4 per cent and the RPI to 2.8 per cent, it is beginning to look as though the Bank of England could be right after all.

But there was a sting in the tale here too. Much of the greater-than-expected fall came from items likely to have been influenced by the unseasonal weather we have been suffering.

Meat, for example, fell in price – as did clothes. Could it be that all those cancelled barbecues resulted in such a drop in demand that the price was driven down? Clothes are more understandable. Who wants to shop for a new summer wardrobe when it is tipping down with rain outside. Certainly, summer sales started early in our shops this year.

And cheaper petrol also contributed to the drop in the inflation rate. Here is where it becomes trickier. Oil is going up in price right now. The fall in the price at the pumps could well reverse sooner rather than later.

Then there is the price of wheat, which rose massively during the past month as a consequence of the drought in America. The fall in inflation might come to an end soon but that may not be a bad thing either.

Brian Tora is an associate with investment managers at JM Finn & Co


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