Is inflation about to rise?

Millions of Britons could potentially see their savings shrink should inflation start to rise.

The latest inflation forecast figures due out (15th August 2017) showed prices rising at 2.7% but with pay remaining flat even with the news that unemployment continued to fall. In the end the Office for National Statistics showed that the consumer price index (CPI) remained at 2.6% the same as the previous month.

There are a number of different factors creating inflationary pressure in the economy including rising commodities and oil prices. A strong economic growth pushes up inflation also with an increase in the demand for goods and services potentially leading to an increase in prices. The falling pound also contributes to higher inflation as that makes importing goods more expensive.

The rising inflation and the stagnating growth in British households pay packets eats away at the nations savings placing a rising pressure on households. Philip Shaw, chief economist at Investec forecasts inflation to gently rise over the coming months to 3%.

The reality is that most people don’t know how to protect their savings and it could see their wealth simply drain away.

In the long-term this is a threat to people becoming financially worse off in retirement especially if you take in to account low interest rates and the stagnant wage growth.

So what can we do to minimise the risk? In a survey by YouGov 27% felt property was a good way to outpace inflation, 13% thought Cash ISAs could help maintain spending power and surprisingly only 7% said investing in stocks and shares ISAs would help particularly as these offer more protection against inflation than Cash ISAs even though there may be a greater investment risk. As the ISA pot increases yearly, now at £20,000 a year, the biggest danger is that some may leave more of their long term cash savings in cash.

Alistair Wilson, head of Zurich’s Retail Platform Strategy said “If you are putting money aside for the long-term, a workplace pension is one of the best ways to grow your savings, and prevent them from being eaten away by inflation. Not only do you receive a top-up from the Government in the form of tax relief, your employer is also likely to put money into your pot, which can help turbo-charge your savings.”

So here are three simple steps to help beat inflation

1. Shop smart – research before making a purchase
2. Consider stocks & shares ISA rather than Cash ISA
3. Top up your workplace pension – benefit from matched employer contributions, you receive tax relief and are better protected from short term market fluctuations

Professional advice is essential

When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Source:
Goldmine Media
The Guardian
Zurich

UK’s divorce has begun

There has been uncertainty in the air ever since we decided to Brexit from the EU. With the triggering of Article 50 on March 29th what does it all mean for UK investors?

We know that by leaving the European Union will be one of the most significant changes we will have seen in the UK economy for a generation as to the impact it may make, well, it could be so small we may not even notice. However the implications of Brexit and its impact on markets is certainly a significant challenge for planning over the next couple of years. A lot will come down to the negotiations and settlement made on the terms of Brexit and for now we need to take a step back and assess what is really going on.

The UK economy against expectations has remained strong and subsequently the UK stock market surged ahead with both FTSE100 and FTSE250 showing record highs and the economy growing stronger that most developed economies since last summers referendum. Growing by 2% overall in 2016. Yes the performance of sterling has had its setbacks but in doing so it has made the UK exports more attractive to the rest of the world. With current UK interest rates restricting its appeal to other currencies, especially the dollar, a low-value pound could continue offering further benefits to UK exports and the FTSE.

Savings on the other hand do not move at rapidly as the stock market so there is unlikely to be much change until concrete facts are provided on the eventual deal made and the same probably will apply to the legal and regulatory framework of UK pension plans. The one thing it does allow it for UK legislation to deviate from EU requirements in the future.

Research suggests that six in ten (60%) of remain voters felt pessimistic about the economic outlook compared to one in five (22%) of those who chose to leave. This negativity is also having an effect on peoples own finances and how they plan to save for the future.

Whatever the outcome attention on Brexit will continue in the coming years and investors should be prepared to respond to opportunities rather than getting caught up in all the noise.

Professional advice is essential

When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Source:
Zurich UK survey, 24th March
M&G investments

Taking the pulse of recovery stocks

In some ways, corporate financial health behaves rather like our own. A company’s health may be good, it may be dragged slowly downhill by a concealed long-term malaise, a more obvious chronic ailment may affect it, an acute condition requiring more urgent treatment may emerge, or a major medical emergency or accident may require a blues-and-twos response and some form of life support.

The concealed long-term corporate malaise may arise from poor management, lack of response to changing markets and a failure to invest for the future. Where these shortcomings are substantial or prolonged, the symptoms of chronic financial illness may become more apparent through declining sales and profitability. Waning demand for a company’s core products or services is often the underlying cause.

Acute conditions that may affect a company’s finances can include situations where a major contract is lost unexpectedly, mass-produced goods are found to be defective by users and must be repaired or replaced, or where a competitor launches a far superior product and thereby grabs a huge chunk of market share. As for those rushed to A&E, the cause may be a physical disaster hitting the company’s operations or perhaps some form of financial irregularity that leaves a big hole in the balance sheet.

Quoted companies do not have immunity to these financial health problems and we can all probably think of some examples in each category. In most cases, the financial ill-health of a company is reflected in a substantial fall in its share price, due to fear either that it may not respond to treatment at all or that it may need the equivalent of a blood transfusion – an emergency rights issue that could water-down share values.

It is in this context that we often hear the expression ‘recovery stocks’, meaning shares that have fallen substantially in price when companies have hit hard times, but are seen to have some prospect of a return to good health. This sounds like a promising investment formula but it is important to remember that, in the way that sick people don’t always pull through, some ailing companies end up in the hands of liquidators.

One strategy for exploiting the opportunities presented by recovery stocks is to spread the risk across a number of companies, by investing through a specialist collective investment scheme. Its managers should also have diagnostic capabilities that few individual investors possess. But this is not an area for the risk-averse; the best approach may be to discuss the recovery fund option with your professional adviser to decide whether a holding would be compatible with your objectives and risk profile.  We are here to help in this regard.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Double-dip recession is not all bad news

There’s light at the end of the tunnel

With the Government confirming that we have indeed entered a double-dip recession, with UK Gross Domestic Product (GDP) falling by 0.2% in Q1 2012, following the 0.3% drop seen in Q4 2011 and the Organisation for Economic Co-operation and Development (OECD) pouring out more pessimistic missives about the UK economy, you might be forgiven for wanting to lie down in a dark room with a damp cloth over your furrowed brow.

However, let’s look a little deeper into these statistics. Yes, we all thought H2 2012 would be a rough ride, with the credit crunch and austerity measures forcing consumers to reign in their spending and the banks, recovering from their glut of profligate lending, having to massively deleverage their balance sheets over the past three/four years and as a result choke off the supply of lending needed for any chance of growth to occur.

Even the OECD themselves believe that H2 2012 will see the economy here rebound, forecasting growth of 0.125%, whilst the Chancellor, George Osborne, has told us that the Office for Budget Responsibility forecast an outcome for the whole of 2012 showing GDP growth of 0.8% and the public sectors borrowing estimate to be £7bn below their earlier forecast.

Given his modest largesse in the Budget, increasing personal tax allowances next year and further to £9,250 from April 2013, maybe this can be the catalyst to loosen the consumers purse strings and boost the spending needed to help revive domestic growth. Add to this the estimated £750bn of cash currently hoarded in corporate balance sheets.  Should these companies start to invest and spend some of this, surely we can see the UK economy finally moving in an upwards direction.

Our cousins across the pond can also help here, with their economy moving strongly up, we may catch the contagion over here.  As they say ‘When the USA sneezes the world catches a cold.’ but the counter-point may also apply.

So all is not lost and provided we do not see any further Eurozone crises and the oil price does not hyper inflate, surely we can see a blue horizon ahead moving into Q2, and the rest of 2012.

 

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Mixed economic data

Arrow graph pointing upwards
Some good news, but clouds on the horizon

News that the UK economy grew by half a percent during the third quarter is something that can be celebrated, especially after the recently-reduced assessment of 0.2% second quarter growth and 0.1% for the first quarter. Of course, this 0.5% growth – while ahead of expectations and still liable to adjustment (upwards or downwards) in future months – is still far less that we have previously been accustomed to.

Unfortunately, the manufacturing sector remains in decline, with the overall growth stemming from services. While the service sector is important to us, many economists feel that so much emphasis on one part of the economy is not good for jobs, especially manual-based ones, and that we really need to see more growth in manufacturing – particularly for export.

Will this affect investors?
Investors always like to see economic growth, because it suggests that the businesses in which they invest are moving forwards; generating greater profits that can be used to sustain dividend growth and thus support increasing share values.

But if too much of our growth comes from services – particularly banking and insurance – this can leave investors disproportionately reliant on an area of business that is highly susceptible to external factors.

Of course, all forms of business today are dependent to some extent on what is going on in the wider world; businesses cannot easily export to countries that are in economic decline; which is why it is so important to focus our attention on the developing economies such as China and India for our own growth. Manufacturing exports are clearly difficult to countries where labour is so cheap; conversely, there appear to be indications that consumers’ expectations in these territories are increasing, which may expand demand for some of the goods and services we can offer.

Over-reliance on services
Unfortunately, the very area in which we excel – services – is highly susceptible to the ongoing problems in banking driven largely by the debt crisis in Greece (and the potential for similar developments in Italy, Spain and Portugal).

News that the Greek Prime Minister, George Papandreou, has called a referendum on the austerity measures necessary to facilitate the bailout has therefore cause concern not just in Germany and France – the euro countries most involved in the rescue – but also in world stockmarkets, particularly in banking sectors.

No time to panic
While there is probably no need for investors to start ‘bailing out’ of banks as an emergency measure, they may wish to consider the implications of a potential extension of the credit crisis on the sector. Anyone who is currently overweight in banking and financial services may should seek professional advice regarding whether they should alter their asset allocation strategy.

Should economic uncertainty continue, however, many more sectors than just the banks and insurance companies (who are massive investors) are likely to be adversely affected.

Regular reviews to ensure that investments are balanced – and thus best able to weather any storms – is a good idea for everyone; those investing for retirement, as well as those with a slightly shorter timeframe in mind.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Positive markets

Chart
Shares are currently 15% below long-term trend

Despite poor economic news in which we are told that inflation is higher, sales flat and growth non-existent, it may seem surprising that stock-markets have recovered somewhat from the ‘doom and gloom’ surrounding the debt crisis besetting the euro – and thus many banks wound the world.

Yet during the first half of October, the FTSE as recovered from a low of 4,868.6 during 4th October to reach as high as 5,501.4 on 14th October, before closing a little lower.

Of course, part of this recovery is due to hopes that the debt crisis in Greece (not to mention Italy, Spain and Portugal) could soon be under control, but there is also likely to be an element of confidence amongst investors that the ‘real economy’ must be getting something right.

A cause for confidence
According to recent data from Capita Registrars, UK dividends exceeded £20 billion in 3Q11 – the first time this psychological barrier has been breached since 2Q08 – with dividends are almost 16% higher than a year earlier. In fact the £55 billion distributed to shareholders in dividends during the first three quarters of 2011 is only slightly less that the amount paid out during the whole of 2010. Capita now predicts that total dividend payments for this year could reach £67 billion – £10 billion more than last year.

The greatest growth has been within FTSE100 companies, rather than FTSE250 businesses; the first time this has happened since the end of 2009.

Is now the time to pile back into shares?
In some respects there is probably no such thing as a ‘good’ or ‘bad’ time to buy any asset. After all, just about everything including – as we have seen recently – houses and gold, can fall in value as well as rise. Unfortunately, without the benefit of Dr Who’s famous Tardis, it is impossible to predict with certainty how the value of any particular asset will move in future.

What we can be relatively sure of is that, over the longer term, most assets tend to rise in value – except, of course, those that naturally deteriorate as they age; cars, for example. We should not ignore the fact that there have been some spectacular falls in the value of individual assets – even whole classes, such as technology in the early part of the century and banks more recently. On the whole, however, the long term trend has been up; for example, the FTSE100 was based at 1,000 in 1984 and now, despite all the turbulence, today stands about five and a half times higher.

Investments must be about the longer term
Because all forms of investment carry costs, most of which occur either at the point of purchase or sale, they should be viewed over the longer term. Short-term saving objectives are usually better served by the use of cash deposits; these will almost invariably lose value when inflation is taken into account, because interest rates are seldom significantly above the RPI, even or CPI. However, they are usually easily accessible and are protected up to very generous levels (currently £85,000 per individual per financial institution) by the Financial Services Compensation Scheme.

If we are looking towards the longer term, then short term fluctuations in value are only relevant when access to capital is actually required, such as at point of retirement, or when income payments are required from a drawdown arrangement.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.