Despite the rapid spread of Omicron, in December the Bank of England increased interest rates from 0.1% to 0.25% as CPI rose by 5.1% in the 12 months to November 2021. At the same time the unemployment rate dropped to 4.2%. This indicates a continuing tightening in the labour market that could cause further inflationary pressures.
Over the horizon, we expect a more uncertain and volatile macro environment, with rising interest rates but not enough to hamper growth as there is no shortage of demand from households. Companies are also investing along with increased governments spending plans.
GB Group were weak during the quarter due to potential concerns over the purchase price of their acquisition of Acunte, but this merger we expect will help with future organic growth of the group and secure better presence in the US with an expectation of accelerated product rollouts. A number of the holdings in the portfolio are software companies which means supply chain issues have not been felt, however recent announcements from two holdings (Strix and Fevertree) have suffered and wage pressures are increasing for firms to retain talent. As a result, cost pressures are likely to remain elevated and we expect companies to pass on the costs to consumers to protect their margins.
Despite the difficult background all our companies retain strong market positions and are well positioned to be long-term winners in their respective markets.