Another hot topic of conversation that has been difficult to ignore in the financial and mainstream press over the last few months is the continuous rise of inflation in both the UK and Europe.
The latest inflation figures show that the UK is now running at 3.1% and France at around 2.4%, much higher than we have been accustomed to over the last decade.
As we have seen with the rally in the GBP/Euro rate markets are expecting a possible rise in UK interest rates with some predicting a rise before Christmas, certainly we will see one after, while the Eurozone is keen to keep rates on hold for as long as possible.
We can all see the increase in the prices of goods, none more so than at the petrol pumps or reflected in our recent electricity bills. In the UK there has been an increase in both food and beverages. Inflation affects all of us one way or another and it’s an important factor for those that continue to hold their savings in cash deposits/premium bonds or fixed deposit accounts.
If your current rate of return isn’t at least matching current rates of inflation, then, as we know, your money is, in effect, devaluing even if you are not spending it.
The Bank of England initially indicated that they felt inflation was a short-term reaction to the opening up of the economy after the shutdowns caused by the pandemic. However, this rise in inflation may not be so short lived now, as first predicted.
Even if we see some reaction by central banks to raise rates to combat and slow inflation, they will not be large and will take time to take effect meaning that funds held on cash will continue to devalue.
There are many options, including those for the risk adverse investor where returns can significantly outperform cash returns and help offset the rise in inflation. A well-constructed, low risk investment can still produce returns to at least match the current inflation rates and sometimes exceed them allowing your funds to maintain their buying power.
This article is based on the opinion of the financial adviser and author, and does not reflect the views of Blacktower. The above information is based on current legislation which is subject to change and does not constitute as investment advice, or investment research and you should seek advice from a professional adviser before embarking on any financial planning activity.
Blacktower Insurance Agents & Advisors Ltd is regulated in Cyprus by the Insurance Companies Control Service and registered with ORIAS in France. Blacktower Financial Management (Cyprus) Ltd is regulated in Cyprus by the Cyprus Securities & Exchange Commission and is registered with the AMF in France.
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