Chief Economist and Strategist, Keith Wade, joined Schroders in September 1988, another period of high inflation. Looking back, he says that there are three themes which he believes have dominated the past 35 years. He shares how he expects they will continue to shape the global economy and markets in the decades ahead.
In looking back over my career at Schroders I wanted to focus on three themes which played a major role in driving economies and markets over the last 35 years. The first is a big theme which ran through the entire period and may now have come to an end, the second is one that started as an economic trend but has become more geo-political and the third is an old theme, one that has challenged economies for decades.
These three themes are the great disinflation, the rise of China, and the rise and rise of government debt. There are other trends, but these three have been the most important in my view and have often been at the root of the crises we have experienced over the period. How they play out will be key to the outlook for the next 35 years.
Theme 1: The great disinflation
In 1988, when I started as a UK economist at Schroders, the inflation rate in the UK had just risen above 6%, the highest for six years and interest rates were high and rising. The economic debate was on how inflation had managed to come back after the deep recession of the early 1980s when three million people became unemployed. The market debate was on how far monetary policy would have to be tightened to tame inflation.
Today, the Bank of England (BoE) and central banks around the world along with the markets are asking the same question as they endeavour to bring inflation back down to target amidst another cost-of-living crisis.
Yet, despite book-ending my career at Schroders, accelerating inflation has not been the theme of the past 35 years. Instead, the period can be characterised as the great disinflation where inflation has steadily fallen year after year (see chart 1). This culminated in a period after the global financial crisis of 2007-08 (the GFC) when the concern shifted from disinflation to outright deflation with central banks ultimately printing money and embarking on quantitative easing. Economists asked if the world economy was about to follow the Japanese experience of falling prices.
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