It’s been a time of “great change” in the UK, with political events unfolding alongside global economic themes, including high inflation and rising interest rates, the team at PensionBee notes.
According to PensionBee, there’s “an interconnected relationship between inflation and interest rates; often when one is high, the other is low.” Both have “made headlines in recent months, but it’s important to remember that inflation and interest rates aren’t inherently bad.”
As explained in a blog post by PensionBee, “in moderation, they’re integral to growing the prosperity of a country.” The difficulty “occurs when one experiences instability and becomes too high or low.”
The firm added that high inflation is “an economic ‘fever’ where symptoms include: a loss of appetite to spend money (due to rising prices), and a weakness in currencies.”
The PensionBee team pointed out that central banks endeavor “to provide the financial stability needed for a healthy, growing economy. So when inflation is running high, central banks may prescribe raising interest rates to lower the levels of inflation.”
The online pension provider added that this antidote of raised interest rates “doesn’t correct inflation overnight and may have side effects of its own, such as it being more costly for you to borrow money for loans or mortgages, whilst also meaning more competitive rates for cash savers.”
According to the update from PensionBee, “the danger of untreated inflation and interest rates is a recession, which economists are speculating is largely inevitable in the current climate.”
The firm added that the “combination of high energy prices, rising interest rates, and soaring inflation is the perfect recipe for a UK recession.” The UK’s central bank, the Bank of England, is “attempting to limit the damage of inflation by raising interest rates.”
In UK stock markets, the FTSE 250 Index “rose by almost 4% in October.”
In European stock markets, the EuroStoxx 50 Index “rose by almost 9% in October.”
In US stock markets, the S&P 500 Index “rose by almost 9% in October.”
In Asian stock markets, the Hang Seng Index “fell by over 14% in October.”
As noted by PensionBee:
“We’re currently in a bear market (a period of economic decline). The good news is global markets have recovered from every bear market in history. Moreover, the value of most global markets not only recovers, but typically goes on to reach new highs. Even the biggest market crash since the Great Depression, the 2008 global financial crisis, was followed by the longest period of sustained growth in market history until the coronavirus pandemic struck markets in 2020.”
They added:
“As a general rule of thumb, when markets are down company shares become more affordable to investors. Putting your pension under a microscope, you’ll see that you probably own a very small percentage of many of the world’s largest and most successful companies, like Apple and Microsoft. When company shares have reduced in value, the same level of contributions can buy more shares. If you’re able to, consider adding to your pension pot to grow your pension in the long term as purchasing shares below their average price could give them more opportunity to grow.”
They also pointed out that you may “find yourself rethinking your pension savings during the cost of living crisis, or worrying about whether you’re making the right choices.”
The firm claims that PensionBee customers “can rest assured knowing that [their] pension plans are being managed by some of the world’s leading money managers.”
Again, it’s worth remembering “that it’s normal and expected for pensions to go up and down in value over time.”
If you’re over the age of 50 and are considering your retirement options, you might “benefit from a free Pension Wise appointment.”
For more details, check here.