Watch our Expert Investment Market Update Webinar from the 7th February 2022

Today, someone asked me why the cost of living is going up. 

The questions don’t stop there.  Why isn’t your money going as far?

With talk constantly moving around lockdowns and new variants, why should the price of a bottle of water rise by 15p in the last four months?  

Prices of consumer goods are rising so quickly that the average wage can no longer keep up.  

Jack Monroe, a campaigner and food writer, recently asked questions about why supermarket value ranges and prices are going up by more than the official inflation rate. 

The poorest and most vulnerable in society are suffering from higher inflation. 

The extra value box of mushrooms you used to buy is now more expensive – while the box is significantly smaller.

The cost of living

Cost of living

Recent ONS data suggests that inflation is being experienced at similarly high levels across all income brackets. The rising global price of energy and transport bills for businesses is being passed on to consumers. Supply problems and inflated shipping costs are further impacting businesses.  

The consequence and impact of Brexit, coupled with the aftereffects of the pandemic, further exacerbated in the United Kingdom and consumers feeling the cost shift.

Rising Inflation Rates

Rising Inflation Rates

These factors all contribute to inflation. The Bank of England (BOE) targets an inflation rate of 2% but in December 2021 raised the projected rate to almost three times that target to 5.4%. There has been further warning from the BOE that inflation could momentarily surpass 7% later this year.

The cost of living in 2022 could be affected by numerous external pressures; average gas and electricity bills are set to rise from April and increasing interest rates will make mortgage payments higher for some. 

Inflation rates are at a near 30-year high adding pressure for the BOE to raise interest rates, which has occurred twice in the past few months, hiking the rate to 0.5%. 

This, acknowledged by Michal Stelmach Senior Economist at KPMG, commenting that “a combination of higher inflation, a resilient labour market, and better-than-expected Omicron data warrants a continuation of the rate hiking cycle that began in December.” 

This has always been the traditional response to rising inflation. With mortgage rates tied to the Bank of England’s interest rate; borrowing on house purchases will become more expensive. 

As your monthly mortgage repayments go up, your purchasing power becomes more limited resulting in a slowdown in the rise of the price of consumer goods.

How is Covid affecting the markets?

How is Covid affecting the markets?

Globally, we are adjusting to the “new normal”. After Omicron, Covid is no longer having the same daily impact on life with the government and the markets responding positively. 

Central banks are also not looking to stunt market growth. Interest rate rises are signposting the need to get the economy to a better place. 

There are positives to be taken from the Covid recession – the regular Sheila or Bruce appear to have had a lifestyle reset. Lifestyle changes have been made, and the need to go back to the regular “quid pro quo” is no longer imperative. With a change in attitude toward full-time office-based work being no longer the new normal.

Volatility and investing

Political and financial market volatility is set to continue for a little while longer. The need to maintain a balanced portfolio is clear.  

Volatility works well for long-term investors and those who wish to cash in on their new year’s financial resolutions and begin regular savings. Finsbury Associates can explain dollar-cost averaging to you and guide you through your investment needs.

Investment Market Update 2022: Inflation & Interest Rates

Looking forward

As they say, what goes up must come down.  It is reasonably expected that inflation will ease in the third and fourth quarters of 2022.

Inflation will wane, but for now, leaving cash under the mattress or deposited in the bank is not likely to give you the same returns potential as the market. 

While you contemplate the old Victorian saying, “safe as houses”.  

Taking advantage of current market conditions clearly offers the opportunity for your savings to keep pace with inflation, if not outperform expectations.   

At Finsbury Associates, we have the experience and a proven track record.  We remain ready to help guide you in the most advantageous direction or position you should take with your asset or retirement planning.

Disclaimer: “Quilter Cheviot Limited (DIFC Branch) (“Quilter Cheviot DIFC”) is regulated by the Dubai Financial Services, Authority (DFSA). This presentation is for general information purposes only, is subject to change and should not be relied upon. Unauthorised dissemination or copying is prohibited. Quilter Cheviot Limited: is a private limited company, registered in England and Wales with number 01923571, whose registered office is at Senator House, 85 Queen Victoria Street, London, EC4V 4AB; is a member of the London Stock Exchange; is authorised and regulated by the UK Financial Conduct Authority; has established a branch in Jersey, and is regulated the Jersey Financial Services Commission, and by the Guernsey Financial Services Commission in the Bailiwick of Guernsey; is authorised by the South African Financial Services Conduct Authority under FSP No. 20872, as a Registered Financial Services Provider; Quilter Cheviot Limited (DIFC Branch) is an established branch in the Dubai International Financial Centre (“DIFC”) with number 2084, which is regulated by the Dubai Financial Services Authority. Accordingly, in some respects the regulatory system that applies will be different from that of the United Kingdom.”