Issue 131

INSIDE TRACK

Why falling inflation makes investing more important The latest inflation figures show that UK inflation has reduced significantly since its high of 11.1% in October 2022. In July, inflation was 2% and current expectations are that with inflation tamed and to support GDP growth, the Bank of England’s Monetary Policy Committee could reduce interest rates from August. This is better news for our weekly shop and our mortgage payments but not for our savings. Higher interest rates over the past two years have meant interest paid on cash accounts have reached over 5% from some providers. But, as interest rates come down, we will receive less return on our cash deposits. This makes stocks and shares more appealing as a means to grow our wealth.

Data from Barclays shows that over 10 years there is a 91% chance shares will outperform cash. Having large amounts of our wealth in cash where interest payments are below the rate of inflation, reduces the buying power of our money, an effect that increases over time if we fail to act on it. There are plenty of investment opportunities, at varying risk levels, that can help us build wealth rather than see it whittled away in the inflation/deposit account rate gap.

Inflation rates (CPI) from recent peak to now

October 2022 (Recent peak) 11.1

July 2023

July 2024

6.8%

2% Source: CPI data: ONS

Longevity – planning for uncertainty Latest data from the Office for National Statistics (ONS) revealed that average life expectancy from birth in the UK has fallen marginally. For a male it is 78.6 years, compared to 79.3 years in 2019; and for women 82.6 years compared to 83 years. But, at the same time, the number of people over 90 in the UK was at its highest level at 550,835, while the number of centenarians has doubled since 2002, to 15,120. The Covid pandemic and its tragic increase in mortality, has affected the data since 2019 and as the ONS points out in its report, “average lifespan will be determined by changes in mortality rates across their lifetime – if mortality rates improve, then period life expectancy will go back up.” When financial planning we need to take into account that as we cannot predict our longevity, how we organise our finances must take that into account, for example, if we retire at age 65, we could need our finances to last for over 35 years. At Lowes we typically set our planning for age 100. We need also to factor in that we may not be in good health all our life, and some later life care may need to be financed. Another important issue to consider, is planning how we pass on our wealth to loved ones and the future generation(s). Having a financial expert to help us plan and guide us through life’s ups and downs can be invaluable. Which is why at Lowes we have advisers who have experience of long-term planning and who specialise in later life care advice.

Green shoots of investor confidence Figures from the Investment Association show that £2.8 billion was invested into funds in April 2024, the highest number since August 2021, suggesting UK investors are feeling more confident about the markets than they were. Part of this has been an influx of late money into ISAs before the end of the 2023/24 tax year – as ISAs are a ‘use it or lose it’ tax wrapper. With the number of higher rate taxpayers predicted to rise to 7 million in the next few years, there is more incentive for taxpayers in, or heading towards that tax bracket, to take advantage of tax efficient investment and savings wrappers.

If you would like to talk through any of these issues, please contact your Lowes adviser or call us on 0191 281 8811 .

This magazine is for general information purposes only and does not constitute advice or a personal recommendation. It does not consider your specific circumstances as an individual and/or corporate investor. If you wish to establish if any of the products, services or options discussed are suitable for you then you should contact us for advice. Remember that the value of your investments can go down as well as up and that you could get back less than you invest. Best endeavours have been made to ensure all information contained within the magazine are accurate at the time of writing, however they may be subject to change later. Past performance is not indicative of future results.

Covershot: Shutterstock. Eiffel Tower and Field of Mars in spring, Paris, France.

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LOWES Issue 131 · Published July 2024