Bah Humbug Brexit

19 Dec 2017

Justin Urquhart Stewart, Co-Founder and Head of Corporate Development

It’s quite usual to see people’s issues with Brussels hitting the press. However, on top of the usual seasonal reactions to some little sprouts (or do I mean politicians?), this year’s often-deadlocked negotiations have caused more of a ruckus for journalists to sensationalise than in the past. And on top of the constant hyperbole in headlines about Brexit, we have also had the onslaught of increasing inflation.

The plunge in the value of our currency since the vote to leave in June 2016 means that life in general – and more importantly over the next couple of weeks – is more expensive. Even if you’re shopping at the UK’s lowest cost supermarket, Christmas is being estimated to cost 18% more than last year – that’s up by almost a fifth.

But it’s not the only price increase being faced by consumers as they partake in some festive fun now that inflation has risen to 3.1% as per the last publication of the Consumer Price Index (CPI) number by the Office for National Statistics (ONS).

In October, lots of pundits were stating that the 3.0% figure was the peak (including me…doh!). And while an additional 0.1% may not seem a lot – like most things in life – you have to dig into the detail to get to the nub of the story. So this is where this chart produced by the ONS comes in handy:

This shows you exactly where the price increases are hitting wallets hardest: namely from transport; food and (non-alcoholic) drink; recreation and culture; and restaurants and hotels. Unfortunately those are almost certainly the areas where you’re most likely to be spending this Christmas.

Offsetting these price increases was the cost of communication, education and the miscellaneous goods and services category (which includes things like financial services and legal fees amongst a whole host of other things). While these are important, I’m sure that they didn’t make many Santa’s lists though.

It’s this itemisation that yet again shows how individual inflation really is, and that the headline CPI isn’t necessarily reflective of the price pressures that you and your household are facing.

So what can you do about it?

Well in the same way that we plan for Christmas, as well as for our annual family holidays, perhaps it’s time to put in some planning for your finances? And here my old adage of “Don’t just plan to invest, invest in a plan” springs to mind.

Not only will a proper plan mean that you’re prepared for any further potential increases in inflation as anyone worth their salt would have taken inflation into account when plotting your future spending – even our app 7IMagine does – but it can also potentially help you see your savings outpace inflation.

With the Bank of England’s base interest rates still at near 200-year record lows, it doesn’t take much to realise that if your money in the bank is earning less than 3.1% then you’re losing money in real terms. And while I am very sure that people are made aware of the risks around investments and that they can go down as well as up – to the extent that your original investment can deteriorate in value – they also have the potential to protect your savings against that inflation risk.

Perhaps something to mull over as you sip on your hot toddy?

And in the meantime, don’t eat, don’t drive…in fact don’t celebrate at all. Instead you should apparently go and play with your ‘miscellaneous goods and services’.

Justin Urquhart Stewart
Co Founder and Head of Corporate Development

Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales No. OC378740.

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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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