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Monday, February 5, 2018

Investing for the future

Higher inflation and near-zero interest rates mean the responsible thing to do could be to invest rather than to save
Many of us have been brought up to believe that saving is the responsible thing to do. But in today’s environment of low interest rates and rising inflation, savers may need to consider becoming investors to prevent the erosion of their assets.

Since the global financial crisis of 2007/08, the world’s central banks, including the Bank of England (BoE), have responded by cutting interest rates to record lows. This reduces the cost of borrowing, encouraging spending by consumers and businesses, but it also discourages saving.

The BoE has acknowledged this is a problem, and in its efforts to keep Britain’s economic recovery on track, the central bank has prioritised growth over the needs of savers. Savers currently hoard
over £60 billion[1] in cash for long-term savings and investments, which stands to be eroded by £1.5 billion this year as a result of higher inflation. That pressure has intensified following the UK’s
recent vote to leave the European Union. The pound has fallen considerably against most other major currencies, which means imports have become more expensive. So savers are not only facing lower interest rates, but they are also facing higher prices.

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