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City comment: 2021 will be remembered as a year of Reddit traders, inflation and private equity

·2-min read
One of the biggest stories of the year was retail investors piling into much shorted stocks like GameStop  (Getty Images)
One of the biggest stories of the year was retail investors piling into much shorted stocks like GameStop (Getty Images)

As we approach the end of the year, it’s a time for reflections: what will 2021 be remembered for?

In the business world, the year began with the madness of Reddit traders waging war against hedge funds by piling into US stocks like GameStop and cinema chain AMC. Retail investors remain a major new force in markets — 2021 will be remembered as their breakout year.

On this side of the Atlantic, we’ve seen floods of private equity cash sweeping over public markets. Asda and Morrisons both fell to the swords of buyout barons. The tide was just about held back at LV=, where an attempt to sell the mutual to Bain fell flat.

In economics, there has been only one real story: inflation. Prices kept rising, and rising, and rising, and rising, blowing a hole in the argument of central bankers around the world that it was all just “transitory”.

What to expect from 2022? More inflation, that’s for sure. Energy prices remain sky-high and will feed into a big hike in the price cap early next year. Continued high demand for goods, rather than services, will keep prices higher elsewhere.

There’ll be more private equity deals too. Despite splashing billions over the past 12 months, the likes of KKR, Apollo, Blackstone and friends are still awash with cash thanks to low interest rates.

Here is where the stories of 2021 and 2022 start to diverge. The Bank of England is expected to hike a few more times next year, with some seeing the interest rate reaching as high as 1% by the end of next year.

The rest of the economy should start to normalise too. House price and GDP growth are both expected to drop back after a bumper year.

Of course, all of this is dependent on Omicron proving nothing more than a temporary blip. On that, we’ll have to wait and see.

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