NEWS, VIEWS & TRUTHS (25/01/21)

Published on: January 25, 2021

Hello everyone and welcome to this week’s News, Views and Truths.  It’s the second edition in the new Monday slot and hopefully, you are liking this new approach.  If not, just let us know!

And I appreciate that I may be flogging a dead horse, but this week’s focus is, once again, inflation.

Figures from the Office for National Statistics show that CPI inflation rose by 0.6% in December after a rise of 0.3% in November.  Despite food and drink prices falling, rising transport costs along with increasing prices for clothing and recreation helped to push inflation up.

While this remains well below the Bank of England’s target of 2%, many economists and industry commentators are beginning to turn towards our often quoted belief that, once the economy gathers momentum and demand starts to outstrip supply, inflation will start to rise more sharply.

There is a vast amount of pent-up demand within the economy as, whilst many people have seen their incomes fall, others who have been working as normal throughout have seen their incomes remain consistent while they haven’t been able to spend.  It is, therefore, reasonable to expect that there will be extra spending when we are allowed to do so and, given how little inflation there was in 2020, it won’t take much for inflation to rise sharply this year.

And so, following on from last week’s blog where we outlined increasing inflation in the US, it seems that this is spreading, unsurprisingly, across the globe as anticipation of renormalisation of the economy grows.  

This follows on from our webinar in September 2020 where we outlined the perils of holding longer-term capital in savings accounts, where the interest rate on offer provides savers with no more than a negligible benefit in an environment of rising inflation.  

Well, here we are, folks.  Welcome to the new world.

So, if you do hold significant amounts of capital in cash deposits (I’m looking at you Cash ISA’s!) and you have no short to medium term reason for doing so, get in contact will us as soon as possible.  It is hugely important that you hold cash as a liquid asset for short to medium term needs however you need to be comfortable with the fact that this capital is not going to deliver you a return, never mind a positive real return.  

But any excess needs to be carefully considered for suitable investment, even if your objective is to simply hedge against increasing inflation.  So once again, get in touch.


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Updated: November 2020