Inflation - FTSE 100

Inflation is one of the biggest threats facing UK investors at the current time. This is primarily due to the fact that inflation has risen from 0.3% to 2.9% in the last year, and is forecasted by Economists to rise even further over the medium term. The rise of inflation rates will have an injurious effect on income returns, since it will mean that a wide range of assets will offer dividend yields which are well below the rate of price increases, for example HSBC. This is why the FTSE 100 is worth investing in, and so provides a worthwhile platform for investors to invest, in particular those who are seeking to beat inflation in 2017 and further in the future. 

Due to the FTSE 100 having a yield higher than the rate of inflation (3.8%), this equates to 90 basis points more than the rate of inflation. As such, this creates a margin of safety in the event of inflation rising even further and causing excess turmoil in the UK economy. This event seems likely, as the main cause of higher inflation has been a weaker pound. Since the EU Referendum in  2016, investor confidence in the UK  has vastly deteriorated. This could have a negative multiplier effect on the UK economy, as a lack of investment could lead to less jobs, and even contribute to potential job instability. Furthermore, a lack of investment HAS contributed to a depreciation in the value of the pound, again reaffirming the fact that investing in the FTSE 100 would be a wise decision. The value of the pound is also likely to decrease even more, as the prospect of another General Election looms and Brexit negotiations continue, all could culminate in inflation rising even further. 

In addition to having a yield which is higher than inflation, the FTSE 100 is also able to offer a range of variety. This is because it is made up of the 100 companies listed on the London Stock Exchange with the highest market capitalisation, and while they don't all have equal weights, together they create a significant amount of risk reduction. An example of this, which I obtained by reading an article produced by 'The Motley Fool', is that while owning a small amount of high-yielding shares may improve income returns, the reduced level of company-specific risk which the main index offers could mean it's income return is more stable and resilient. In terms of companies within the FTSE 100, the majority of them are international companies. With this in mind, and the knowledge that the pound is getting weaker, these companies will be able to boost their earnings and significantly benefit from a depreciation in sterling. They are able to do this through processes such as Globalisation, with the Headquarters of these MNCs being located in more affluent countries(such as the UK - Hence the "London" Stock Exchange) where the bulk of profit ends up. Firms such as BP and Shell are currently offering yields of around 6.5% and 6.7%, thus making them worthy stocks to invest in; however this is only possible due to the depreciation in the value of the pound. 

Overall, the FTSE 100 offers rising dividends, a high yield and a mix of growth potential; and so seems to be a logical and sound means of beating inflation. Despite the FTSE 100 faltering when Theresa May called for a General Election in April 2017, it has enjoyed a major 'bull run' in recent months; and so looks to be an advantageous place to invest for the future.