Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
ANYONE getting ready for Christmas, needs no reminding that life is getting more expensive.
Even before today’s inflation figures - showing UK headline Consumer Price Index inflation rising at an eye-watering 5.1% - the cost of gifts on the high street, of food for the big day, of petrol to get us across the country, and of the household energy needed to keep the fairy lights on when we get there, has been rising fast.
UK price rises at above 5%, means inflation is now at a level more than two and a half times the Bank of England’s target rate of 2%. Most – including the Bank itself – initially expected this level would not be hit until well into next year.
The Bank is currently caught between its two primary functions - controlling inflation and ensuring financial stability. With inflation already so far above its 2% target, getting prices under control would appear the more-pressing priority. But there is clearly a concern that the economy is too weak to withstand any increase in borrowing costs.
A rise in interest rates may help reduce demand in the economy and thereby apply downward pressure on prices, but the effect won’t be immediate. Moreover, many of the current causes of inflation may be unaffected by a rise in rates. Making it more expensive for individuals and businesses to borrow money won’t ease disrupted supply chains or high international shipping costs, for example.
On one level continued low rates is a plus for stock market investors, who have seen share prices rise thanks to low rates and easy money via quantitative easing, but it does leave them with the task of keeping pace with inflation. At a broad asset-class level, the stock market is still the place to be to give your money the best chance of doing that. It means the risk of loss, of course but, now more than ever, we can see the hidden danger that inflation holds for seemingly safe assets, like cash - there are very few risk-free options right now.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
Share this article
Market news today - Contrarians sense a turning point
What’s driving your investments this week?