Stock Take

While global attention was largely focused on the build-up to the World Cup final between Argentina and France last week , the three main Western Central banks all raised interest rates by 0.5% within 24 hours of each other.

That said, the messaging that accompanied the moves varied quite notably.

On the more optimistic side was Bank of England (BoE) Governor Andrew Bailey. He said: “We think we’ve seen possibly this week the first glimmer, with the figures released this week, that it’s not only beginning to come down but it is a little bit below where we thought it would be and that is obviously very good news.”

Bailey was speaking after UK inflation fell from its multi decade high to 10.7%. After a year of inflation dominating much of the economic conversation, any signs that it may at last be on the way down will be welcomed. That said, it remains far above the BoE’s 2% target, and even Bailey admitted there is a risk it may not fall as he hoped, thanks to a tight labour market.

These risks were a factor in the BoE’s decision to raise interest rates to 3.5% on Thursday.

Mark Dowding, Chief Investment Officer at Bluebay, said that the BoE has historically been relatively soft in its messaging. He noted the bank is “acutely aware of the mortgage rate pass through on households already reeling from higher energy costs.” Adding that, “Our 2023 outlook continues to foresee the BoE under delivering versus market expectations, struggling to raise rates above 4%.” This softer stance, Dowding suggests, could help prolong the inflationary issues facing the UK.

The European Central Bank also raised its interest rates by 0.5% last week, however the messaging that accompanied the move was less optimistic about the future. Speaking after the announcement, ECB President Christine Lagarde said that based on a substantial upward revision to the inflation outlook, she expects interest rates will still rise significantly.

Azad Zangana, Senior European Economist and Strategist at Schroders, noted: “Money markets had priced the peak in the main ECB interest rate to reach between 2.75% and 3% early next year. However, the signal from the ECB seems to suggest that the terminal rate [highest point] may now need to be higher given the worsening outlook for inflation.”

Somewhere between these positions was the US. Here, the Federal Reserve again raised interest rates by 0.5%. Inflation in the US has been on a gradual downward curve since June, however Fed chairman Jerome Powell noted ‘we still have some ways to go’ when it comes to getting inflation to a more manageable 2%.

“I wouldn’t see us considering rate cuts until the Committee is confident that inflation is moving down to 2% in a sustained way,” he added, dashing hopes that interest rates would start being cut in the near future.

This messaging was enough to send markets into a retreat, with the NASDAQ and S&P 500 both falling by over 2%.

Wesley Johnston, Senior Portfolio Manager and Research Analyst at Sands Capital, said: “When we talk to companies, we hear that they feel much better about their labour situation today than they have at any point in the past 18 months. The supply chain has also improved a lot.”

He adds that a lot of the inflationary pain has already been factored into many company valuations. After a tough 2022 ends and 2023 begins, investors will be hoping this helps lead to a brighter new year.

Wealth Check

We now have more information, more choices, and more responsibility for our retirement savings. But will the future we want be the future we are able to get? In many ways, this comes down to the seemingly simple question: how much do you need for a happy and enjoyable retirement?

The Retirement Living Standards, launched by the Pensions and Lifetime Savings Association (PLSA) in the UK, looks to answer just that. It has been developed to help people picture what kind of lifestyle they could have in the future.

Pitched at three levels: minimum, moderate and comfortable, the standards have been designed to act as a practical and meaningful starting point for anyone who is unsure about how much to put away.

Like the five-a-day healthy eating initiative, the PLSA’s ambition is for the Retirement Living Standards to become a widely adopted industry standard.

The minimum living standard covers most people’s basic needs plus enough for some fun – including participation in social occasions. For example, you could holiday in the UK, eat out about once a month and do some affordable leisure activities about twice a week.

The moderate lifestyle provides, in addition to the minimum lifestyle, more financial security and more flexibility. For example, you could have a two-week holiday in Europe and eat out a few times a month.

At the comfortable level, retirees could enjoy some luxuries like regular beauty treatments, theatre trips and three weeks in Europe a year.

In the UK, the trade association says a single person will need £10,900 a year to achieve the minimum living standard, £20,800 a year for moderate, and £33,600 a year for comfortable. For couples it is £16,700, £30,600 and £49,7001.

Assuming you qualify for the full State Pension of £9,627.80 2022/23 a year, the PLSA says you’ll still need to build up a pension pot worth at least £590,000 to achieve a comfortable retirement1. This is if you want to turn your pension into an annuity, which pays you a guaranteed annual income for life in retirement.

Given that the average amount sitting in pension pots after a lifetime of saving is £55,9001, many retirees may be shocked to learn how little income their savings will provide.

“There’s still a long way to go in terms of raising awareness,” says Tony Clark, Head of Retirement Marketing at St. James’s Place. “It’s vital to realise that building a decent retirement pot means being engaged with the process early on.”

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.


1 Retirement Living Standards, Pensions and Lifetime Savings Association, 2021

In The Picture

2022 has seen inflation rise across the West to levels not seen in decades (Sources: the US The Bureau of Economic Analysis, The UK Office of National Statistics and Eurostat.)

The Last Word

“World Champions! I dreamed about it so many times; I wanted it so much that it hasn’t clicked yet, I can’t believe it”

Lionel Messi celebrates winning the 2022 World Cup

Bluebay, Sands Capital and Schroders are fund managers for St. James’s Place.

SJP Approved 19/12/2022

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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