Views on the News

What you’ll learn:

• Slowing US inflation raises hopes of interest rate cut
• More reassuring news from China
• Check your pension fund now – it could be losing you money.

Headline 1: Slowing US inflation raises hopes of interest rate cut

The rate of inflation in the US economy fell in April, breaking a run of three consecutive months of higher than expected price growth and raising hopes of interest rate cuts in the world’s largest economy this year.

Official figures showed annual consumer price inflation (CPI) in the US dipped from 3.5% to 3.4% in April, in line with economists’ forecasts. Month-on-month, prices accelerated by 0.3% between March and April, lower than forecasts of 0.4%.¹

Sean Markowicz, Senior Investment Strategist: Inflation moving in the right direction was interpreted as a net positive for risk assets last week. That said, the 3-month and 6-month run rates of inflation remain elevated and so we would need to see a series of softer prints ahead for policymakers to feel more confident that price pressures are abating. As a result, US policymakers have called for a “higher-for-longer” interest rate stance, especially given robust economic momentum.

Headline 2: More reassuring news from China

China’s April CPI came in slightly above expectations, with headline inflation up 0.3% year-on-year (versus 0.2% expected), a step-up from the 0.1% reported in March.

Not only does the country seem to be escaping deflation, but local authorities have also ramped up announcements around continued support for the Chinese real-estate sector. Retail sales (+2.3%) were the only disappointment.²

Sean Markowicz, Senior Investment Strategist: Even though inflation edged up, it remains very close to deflationary territory. Credit growth gives little cause for optimism and the weak domestic demand picture suggests a fragile state of affairs ahead.

Nevertheless, investors have turned more up-beat on the growth outlook given exceptionally depressed valuations and forthcoming policy easing measures to support the housing market.

Headline 3: Check your pension fund now – it could be losing you money

Nine out of every ten pension funds investing in UK stocks have failed to beat the overall return of the stock market over the past decade. Note that past performance is not a reliable guide to future performance.

A study found that 189 of the 208 UK equity pension funds had a lower return over the past ten years than the iShares UK Equity Index, a tracker fund that aims to replicate the holdings and performance of the biggest 565 UK-listed firms.

That's 91% of funds underperforming. About 72% of the funds performed more than 10% worse than the tracker fund.³

Lee Platt, Wealth Manager: Checking your pensions is an important task to making sure your retirement savings are working hard.

Unfortunately, many savers in older schemes might not realise if performance is poor or if fees are unnecessarily high if they haven’t checked. Now is as good a time as any to round up all your pension schemes, both personal arrangements and from any previous jobs, and see if your investments are suitable – and that you’re getting value for money. High fees, which you may find on some old schemes, compound over time and eat into returns.

Some people decide to combine all their pension pots into one so they can access cheaper fees and a wider range of investments. It also means keeping track of just one scheme rather than a string of providers. This could also be a good time to take stock and have a review of your arrangements.

When considering a new home for your money it’s important to choose the right pension. Should you choose to consolidate your pensions into a self-invested personal pension (SIPP) then you would gain access to thousands of investment choices.

SIPPs typically enable you to invest in shares, funds, Exchange Traded Funds (ETFs) and more, allowing you to build the portfolio that suits you. Another potential benefit of SIPPs is that they can help you keep on top of costs, especially if you invest with fewer providers.

Moving your pensions into one place might not be right for everyone. It’s vital you check you’re not giving up any valuable guarantees or benefits included in an existing pension scheme.

As we don’t provide tax advice, it’s important to do your homework and consider how switching or consolidating pensions affects your financial and tax position. If you’re unsure, please seek independent advice tailored to your individual circumstances.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.