Autus Newsletter » Spring 2022

The Hangover

For several years we have been concerned about the threat of rising inflation and the impact this could have on the bond markets. Our concern pre-dated the pandemic, which only served to exacerbate those fears.

For many of you, we implemented amendments to your investment portfolios to reduce the exposure to fixed interest securities, and this turned out to be a wise move as inflation is rising globally.

As if a pandemic wasn’t bad enough, what no one anticipated was the Russian invasion of Ukraine. Think of it as ‘inflation plus’ when what we had ordered was ‘inflation lite’.

The primary tool used to control inflation is to raise interest rates (hence the recent rises in the US, the UK and other parts of Europe). Perversely, the war in Ukraine and related oil and cost of living crisis may be doing the Government’s job for them. i.e. Prices are rising so much that people are already changing their spending habits. So, further increases in interest rates might no longer be needed.


On the home front

The UK is entering a ‘prolonged period’ of much weaker growth as the cost-of-living crisis hits the economy, warns Suren Thiru, head of economics at the British Chambers of Commerce.

In other words, the economy had a bit of a boost in January and February as everyone ‘celebrated’ no longer being locked up, but the party was short-lived, and reality has now kicked in.

So, what does all this mean? Honestly, it’s impossible to tell, but we can glean a few likely points:

  1. Returns on cash are almost certain to be lacklustre.
  2. Inflation will probably be much higher than expected – However, the trajectory might look more like a rocket falling back to earth.
  3. Interest (and mortgage) rates possibly remain lower than forecast.
  4. The fixed interest market is likely to display significant volatility.

We’ve already highlighted that the next eighteen months or so are likely to be volatile, and our advice is still to ignore the noise and sit tight.

We cover some of the other issues related to rising inflation in our Spring newsletter. Our feature considers how gifting from income can help you structure your estate planning in light of frozen inheritance tax thresholds and the Chancellor’s decision to keep the tax broadly unchanged.

As always, please do not hesitate to contact us if there’s anything you would like to discuss further.

In the meantime, we hope that we can all look forward to a bright and sunny Spring!





Autus



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