Things look pretty bleak at the moment after a week of poor economic data. While none of it was particularly bad in a vacuum, it makes for ugly reading when looking at the entire picture.
While inflation was flat at 3.8% in August, as Trustnet reported on Wednesday, JP Morgan Asset Management global market analyst Zara Nokes called the figure “increasingly ugly”. Especially when taken in the context that the Bank of England expects it to rise to 4% in September.
This was compounded by wage growth data from the day before, which showed regular wage growth (excluding bonuses) dipped to 4.8% between May and July, down from 5%. But total pay packages (including bonuses) were up 4.7%, 10 basis points ahead of the previous period.
The fear here is that higher wages could lead to further inflation in the future, as companies pass on the higher costs to the consumer. It is for this reason that the Bank of England decided to sit on its hands this week, keeping rates at 4% despite inflation hovering near double its target 2% rate.
Yet excluding bonuses, wage growth fell. So while there is more money in people’s pockets each month (on average), there is less of a buffer when compared with inflation than there was the month prior.
Those in retirement may benefit – a silver lining we chose to highlight – as the state pension triple-lock is linked to the highest of average earnings growth in May to July, September’s inflation figure or 2.5%.
But even this is not set in stone, with some suggesting chancellor Rachel Reeves could look to change this system to address the increasingly ballooning cost to the government.
If this were not bad enough, research by interactive investor found people are woefully unprepared for their retirement through their private pensions. Chief executive Richard Wilson stated: “Many pension savers are on track for financial insecurity in retirement and they are increasingly worried.”
Lastly, while the nation is saving more, as evidenced by the rise in cash ISA subscriptions in the 2023/24 tax year (the most up-to-date figures from HMRC that were released this week), a lot of that cash could be getting eroded.
Someone who locked in their cash in 2020, for example, would have lost money in real terms, given the extraordinary rise in inflation that has taken place since.
On top of this, the chancellor has repeatedly looked at reducing the amount people can save in cash ISAs. The latest figures could embolden her to strike, according to Adrian Murphy, chief executive officer of Murphy Wealth.
So what can we do about it?
Finding more money to invest in our pensions (given the aforementioned pensions crisis, the nation seems to be walking into) may be difficult at a time when inflation remains high. Yet those who can absolutely should.
For those with money sat in cash ISAs, now could be the time to either lock in at higher rates (assuming the Bank of England will have to cut rates at some point to deal with the economy).
Even better could be to switch to a stocks and shares ISA, as the value of these accounts is far superior to their cash cousins, even though there are far fewer investment accounts than cash ISAs.
While some argue that markets could make nothing for the next 10 years, there will be pockets that do well. It might not be a lot, considering everything continues to get more expensive, but something is better than nothing.