- 20th July 2020
- Posted by: Dean Hall
- Category: Newsletters
I hope this finds you keeping well and staying safe in this new normal.
On this day in 1969 Neil Armstrong was the first person on the moon and the space race was over.
Looking back between 1960 and 1973 it is reported that NASA invested circa $25 billion dollars into this programme.
Fast forward to today and depending where you get your stats from this would have been $156 billion dollars.
As we move forward these 51 years, we are yet to put feet back on the moon since the early 70’s but there is one force that has remined over this time, inflation.
We might know it more as the cost of living and inflation is measured by the Office for National Statistics (ONS).
It produces three main estimates of inflation:
- the Consumer Prices Index (CPI)
- the Consumer Prices Index including owner-occupiers’ housing costs (CPIH)
- the Retail Prices Index (RPI)
The CPI is the most commonly quoted figure.
The current rate of national inflation is 0.6% and this edged up a little in June given an increase in costs toward clothing and (video) gaming.
The overall national target for inflation is 2%, so as you can see, we are well below this right now.
With super low inflation you would think this is a positive but potentially this means we will have depressed wage increases (if any), low interest rates and in the most part low consumption.
The Bank of England look to move interest rates to help control inflation but with the current rate being 0.1% and inflation being low the only way is up.
Looking out to the middle term I see inflation as being one of the greatest risks to all financial planning.
This could see an explosion in day to day living costs seeing as an increase in demand will drive prices higher. This then sees savings and investments not being able to keep pace as they are stuck toward this lower and slower recovery cycle.
With the Bank of England rate being 0.10% and the average savings account now being around 0.65% how can we afford a spike in inflation if these rates do not follow upwards.
This is on our agenda for the rest of this year and I will provide more on this in the coming months.
I am banging the drum about cash again, so it seems with it being a poor returning asset. You must ensure that you are consolidating your old accounts where you can and being leaner and meaner in your approach to getting a 1% return.
Non and Basic rate taxpayers can earn £1,000 in interest whereas higher rate payers can earn £500 before any tax is paid. These are small margins overall but having fewer accounts and being able to move with the market will provide you with more choice and freedom as we move forward.
The markets remain to be a little “crabbie” as they move side to side really and we are not seeing any great movements up or down. This isn’t a bad thing as it allows a little time for reflection as business does start to move in a little more of a normal pattern.
Finally, one small step… wills and powers of attorney.
It is one small step to get these produced and set up. I haven’t mentioned these so far in this pandemic with the terrible sad loss of lives.
However, at times these things are hard to face and sadly we are not immortal.
I would strongly recommend that now is the time to review these and ensure these are matching your current views and importantly can be found.
As always, I am just at the end of the phone and the mobile remains the best way to get me directly.