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Interest rates and inflation in 2023

by | May 3, 2023 | News | 0 comments

Interest rate rise

On the 23rd March the Bank of England raised interest rates to 4.25%, making it the 11th consecutive rate hike. This was against speculation that rates may not rise this time, considering the turmoil in the banking sector, caused by the collapse of Silicon Valley Bank and Credit Suisse.

So, this recent rate rise means that the Bank of England has put a higher priority on tackling inflation but made comment that they will remain “vigilant” to further issues in the banking sector.

The collapse of SVB and Credit Suisse was a crisis not foreseen and this gave the Bank of England additional consideration regarding the sector.

With the Governor of the Bank, Andrew Bailey informing MPs that while the bank remained on high alert, he does not think that we are in the same place as in 2007. Since then, we have seen the UK banking sector in a more cautionary recovery with the European banks.

So, for now the higher temperature of consumer prices in February (CPI Inflation accelerating to 10.4%), and the tight labour market are cause for concern. This is amid worries that inflation could still become embedded in the UK economy, with inflation for February forecast to be 9.9%.

Inflation and investments

Currently, we are seeing energy prices falling, which will help stop inflation running out of control. However, although inflation is starting to fall in Europe and the US, it is proving harder to control in the UK. Here, the higher-than-normal energy prices, wages, core goods and services trending up and the weak pound has been keeping core inflation figures high. The Bank of England has however stated that they expect inflation to fall sharply over the coming months, which could mean the rate hikes are coming to an end.

2022 was indeed a torrid year, in which bond funds fell in tandem with equities, yet yields effectively doubled, and the attraction is increasing. But while many commentators suggest that 2023 will be the year of fixed income – are strategic bond funds the best way to access the asset class? Is it time to increase exposure to the fixed income market this year?

High inflation and rising interest rates have put markets in a volatile state, making investors nervous, with some taking a cautionary stance, by locking in a set income yield now as more attractive than taking a risk with equities. However, investors often forget that bond returns are limited to yield at purchase, if held to maturity and the bond doesn’t default, that is the return you will get and no more. Of course, having a guaranteed yield is attractive in the short term, accepting a set rate now can put investors at a disadvantage, because there is no opportunity for future growth rate.

Fixed income is “fixed”, whereas dividends get paid out of nominal corporate cash flows that grow over time in line or above the level of inflation.

Investment trusts focussing on companies, that have good positive cash flows which can increase dividends over time could prove fruitful.

 

If you would like to discuss your current investments or future plans we would be happy to schedule a call – Contact details for the CFM team are here and my contact details are:
E: stephen.lovelock@capitalfinancialmarkets.co.uk
T: 0203 6970561.

Stephen Lovelock, May 2023

Emma Tuckett

Investment Manager

Well-respected Investment Manager, Emma Tuckett, has joined CFM following a successful career at Killik & Co.

After nearly a decade working in Trading and Investments, Emma has worked with clients from a wide range of backgrounds and has extensive experience in Advisory and Discretionary Investment Management, with a particular focus on ESG investing and helping clients align their investments with their long-term objectives and values.

emma.tuckett@capitalfinancialmarkets.co.uk

Joanne Hill

Compliance Manager

Joanne has joined Capital Financial Markets as Compliance Manager having worked in the Independent Financial Advice sector for over 30 years. 

Joanne holds a degree in Business and Finance, the CII Diploma in Financial Planning and has a wealth of experience and knowledge within Financial Services.  Joanne’s role is to protect both Capital Financial Markets and our Clients.

joanne.hill@capitalfinancialmarkets.co.uk

Saffron Heasley

Client Administrator

We are delighted that Saffron joined the CFM team as our business apprentice capably fulfilling the Client Administrator role. Saffron brings enthusiasm, reliability and a strong willingness to learn. In this role, Saffron supports the smooth day-to-day running of the business, providing essential administrative support across the team helping to ensure processes run efficiently and compliantly.

With a keen eye for detail and a proactive approach, Saffron is developing a solid foundation while working closely with colleagues across the organisation. Saffron is a valued member of the team and plays an important role in supporting CFM’s operations as we continue to grow.

saffron.heasley@capitalfinancialmarkets.co.uk

Paula Mitchell

Head of Operations & People

Having worked with us as a consultant for over eight years Paula brings that familiarity to the organisation and has joined the CFM team as Head of Operations & People.

A seasoned finance and HR professional with a masters in HR Management, Paula combines analytical strength with a people-centred approach to drive operational excellence. Paula will be leading the team and supporting Paul with the operations and people strategy ensuring sustainable growth and the smooth running of the business.

paula.mitchell@capitalfinancialmarkets.co.uk