Disclaimer
Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
A cash ISA has to be an increasingly tempting option for most of us at this point. With the bank rate up to 4.25%, easy-access savings accounts are offering returns of 3% to 3.5%, while locking your money away for two years can get you 4.25%, at the time of writing (this may rise as the recent BoE rate hike is passed on). With so much uncertainty in markets, hiding on a pile of cash under the duvet is appealing. However, even 4.25% compounded might not preserve the real value of wealth over the next two years. The day after the Bank of England reaffirmed its expectations that inflation would fall rapidly in the near term, retail sales beat the consensus of economists’ forecasts. Economists predicted 0.2% growth in February, you and your friends and family delivered 1.2%. So economists were only out by a factor of six. We suggest there is a non-zero possibility the Bank of England economic forecasts of rapidly falling inflation will prove to be as wrong. We suggest Andrew Bailey resorting to asking companies not to raise prices is not a good sign. It may therefore be that investors need to take equity risk to have a better chance of beating inflation. In this note two of our analysts debate how they might do that with this year’s tax-free allowances.
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