The continuing conundrum for savers / 'Forward Guidance'

The new economic tool deployed by the new Governor of the Bank of England, Mr Mark Carney, in August 2013 was heralded as the opportunity to manage economic, and to some extent financial, expectations into the future. 'Forward Guidance' as it is known, provides all those affected by the economy with the opportunity to know how the Bank of England predicts the future, and more importantly, what they plan to do if these expectations are met.

As we have seen, Forward Guidance has linked the Bank Base Rate (currently 0.5%) to UK unemployment levels (currently 7.8%) with the plan that Base Rates will remain at their current level until the unemployment level falls below 7.0% (Subject to anything unexpected happening, which it can). With this plan in mind, the Governor does not expect the target of 7.00% being reached for around 3 years, and therefore does not expect Bank Base Rates to move either in this time.

This new direction provides the benefit of certainty for some (such as businesses and mortgage borrowers as examples), but also provides the negative certainty of continuing low returns for savers.

Many savers have seen returns falling in recent times, with Premium Bond returns also falling from August 2013 onwards. Many are resigned to this situation, sensibly using their tax efficient ISA allowances where possible to reduce the tax take on any gross savings earned.

Against this backdrop, some clients and enquirers are reviewing their attitude to investment risk, where appropriate, and applying this review to their future investment decisions. As an example, UK Dividend returns have remained relatively firm over the last year and these have typically been between 3.00-4.00% gross pa (Not guaranteed, past performance is not a guarantee of future performance). Obviously, by moving into this investment area, the risk to the capital invested increases significantly, with the value of funds varying daily. This volatility (and overall investment risk) is detailed on our Investment Risk Scale further here (Link). However, if an investor is prepared and able to accept this level of investment risk, this investment alternative may be suitable in some investment cases. It should be noted that diversifying any investment is usually worthwhile and we have noted that committing smaller sums initially may be worthwhile to get used to the chosen investment medium before committing larger sums.

Each investment plan and recommendation is different and individual to the Client. To consider your circumstances with regard to savings and investments, you should take individual financial advice. No individual advice is provided in the content of this Blog. The team at Chapters Financial can help you with your planning and look forward to working with you.

Keith Churchouse FPFS
Director
ISO22222 Certified Financial Planner
Chartered Financial Planner
Chapters Financial Limited

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.