FE Alpha Manager Jan Luthman (pictured right), who heads up a number of UK-focused funds at Liontrust Asset Management, sees no reason for optimism and says that the higher-than-expected inflation rates are a natural product of central banks' liquidity measures. "Basically, I think what Sir Meryvn said was exactly what myself and Stephen [Bailey] have been banging on about for quite some time. We are in a period of very low growth and we are seeing negative real wage growth," he explained.
"To quote Sir Mervyn: 'inflation is unexpectedly sticky and unexpectedly high'. Well, it might be unexpected for Sir Mervyn but not to us."
Luthman believes banks will continue to implement quantitative easing (QE) measures. While this will negatively affect a number of domestically focused sectors, he thinks some areas will see big benefits.
"We don’t think QE is over, as high-class economies around the world are engaged in the same game," he said. "They will want to manoeuvre the currency down in order to compete with more fast-paced emerging markets."
"I think areas that will be worst-hit by this are utilities, retailers and house builders."
"However, QE will help areas in the market like raw materials and resources as investors will want to be in real assets."
"Also, investors should look to consumer staples that can benefit from emerging markets, because if the price of sterling can be talked down then investors' earnings will appreciate when translated back into sterling."
Neil Shillito, director of SG Wealth Management, says there was no real shock in Wednesday’s announcement.
"I think his [King's] comments were, in essence, entirely predictable and I can’t see how anyone could be that surprised," he commented.
"What I think is important to take on board is that all this adverse press that investors’ portfolios are not making any money, it’s simply not true."
"Over the last five years, Nigel Thomas – a manager we have been using for a long time – has made huge capital returns."
"If you were to ask the man on the street about the state of the economy, he would say it is dreadful. Yes, the FTSE has been relatively flat over the last few years. But it shows that if you invest in a good stock picker, then the economic environment is irrelevant."
"What we could see is a run on the market in the next couple of years, especially if inflation increases and interest rates pick up, so investors could see fairly decent returns."
According to FE data, Thomas’ AXA Framlington UK Select Opps fund has returned 27.46 per cent over five years. This compares with 8.96 per cent from the All Share and 17.95 per cent from the consumer price index (CPI) – the most popular measure of inflation.
Performance of fund and indices over 5-yrs
Source: FE Analytics
Danny Cox, head of advice at Hargreaves Lansdown, says the UK economy is looking particularly weak and believes this will stay the same until a catalyst for consumer spending occurs.
"Markets have reacted pretty dismally this morning because of the comments, he said.
"What we are seeing at the moment is that inflation is running above wage growth."
"Unemployment is falling, but that is down to an increase in part-time workers. There is little confidence around so there is a general lack of spending. I think this period of economic weakness will continue until that is sorted."
"For this reason, I think it makes sense that the BoE has made changes to their growth forecasts. But with that it raises the question whether or not we can fall into a triple-dip recession next year, if there is such a thing?"
"The only way I can see this lack of confidence changing is if the Government simplifies the tax system and increases spending. I think it is going to be a slow and long haul to recovery."
In terms of where investors should be looking to put their money, Cox says there are few options in the short-term.
He commented: "UK companies are hoarding cash because they are unwilling to invest. These companies are only going to spend when they feel the time is right."
"At the moment, investors have little choice but to invest in the markets, as you cannot get returns on holding cash or gilts. Over the long-term, I think this is a very sensible idea."
Lee Robertson, chief executive of Investment Quorum, is more optimistic and thinks that King’s comments were borderline sensationalist.
"I think Mr King forgets that he is an ambassador for this country’s financial sector," he said. "He seems to have the proclivity to talk markets down."
"There is growing good news out there and I think Mr King has the tendency to ignore it. So I think his comments are less than helpful."
"Investors have to look past this bad news and concentrate on investment fundamentals. More jobs are being created and people are starting to spend more. Obviously we will have to see how Christmas goes."
"If investors were to react to every bit of bad news in the short-term, they would be damaging their portfolio," he finished.