August 2021

Summer is now in full swing with many now on summer holidays (restricted or otherwise), and brighter times seem to be here, both in terms of the summer months and global economic forecasts, having endured a lockdown which is only now beginning to ease. As we see dates being reached, or perhaps slipping a bit, on the road maps to civil freedoms, it is anticipated that consumer spending will return as restrictions lessen. Freedom Day received rather mixed reviews!

Markets have remained largely buoyant during 2021 and many are predicting that those who have made personal savings over the course of the last year will release the cash with purchases and staycations (with some foreign travel allowed to specified countries on the 'green list'). Spending is the lifeblood of any economy, and to some extent, it is not the amount that something costs, it is the fact that we are putting cash-flow into the system that creates further spending, jobs, business growth and of course taxes. As we also head towards the end of the full Stamp Duty incentives, the UK residential property market and mortgage borrowing continue to accelerate apace, with the full benefit ending at the end of June 2021, halving to the end of September 2021 and based on the current plans, ending thereafter.

Importantly, this flow of money can also have the effect of creating inflation; the 'I' word. It is easy to think that the last decade or so has been 'normal', with inflation rates at ultra-low levels. This has meant that bank base rates have bumbled along the bottom (UK base rates currently at 0.10% with negative interest rates still being discussed) because these are one major tool used to control inflation. And if there's no inflation to control, you don't need high interest rates. Most economies have liked low inflation for years now, but change seems to be coming, and is now being anticipated by many pundits. For reference, the June 2021 inflation figure (Consumer Prices Index / CPI) was 2.5% (12 months to June 2021). Notably, CPIH (Consumer Prices Index Household) rose to 2.4%, and it is important to remember that the Bank of England's target for CPI remains at 2.0%. The Retail Prices Index (RPI) is 3.9% to June 2021.

In the US, the Biden administration has just issued (late March 2021) stimulus payments of $1,400 to many households. That's $242 billion so far put into the hands of individuals in the hope that they spend and perhaps super-charge their economy, and there's more to come. Let's not forget the $1.7 trillion being considered for his US infrastructure plans.

However, is there a change coming? Perhaps a few years away, but still a change? Many think so. Let's head back to the pandemic (sorry!), and the mountains of debt that governments across the globe have taken on. It's a bit quiet on that front, but whilst borrowing costs are so low, piling on debt for many nations has been cheap, and if it keeps the all-important cashflow going then most have considered it a price worth paying. But this does not mean that the debt is under control, or that a planned pay-down process is in place. Some major economists have indicated their approval of additional national borrowing to get their respective economies going first, and then worry about it later.

Inflation is not a bad thing; indeed, stagnation and deflation are worse. High inflation can be difficult, but it has its advantages, especially if you have high debt levels, simply because inflation has the effect of eroding debt. Some might think that a healthy bout of inflation might erode the debt that governments have amassed. There is nothing new in this thinking - just look back to the UK economy of the 1970s and 1980s.

From a personal financial planning perspective, we have not really had to deal with high inflation rates for over a decade. If base rates rise to control inflation if and when it increases, this might mean higher deposit returns, increased annuity and mortgage / loan rates and higher costs in the shops. Equities may gain as the spending filters through, but they might need to, to pay for higher price goods.

With these points made, we remain optimistic for growth and returns in 2021. I have referenced some indices to provide a guide of performance thus far, noting of course that past performance is not a guarantee of future performance. Since the bottom of the market at about 23 March 2020 last year, we have seen the following examples, using a range of indices to potentially demonstrate an overall view (approximate):

Market Index

Value on 23 March 2020

Start value on 04 May 2021

Percentage change

FTSE 100 (UK)




FTSE 250 (UK)




Dow Jones (US)



(03 May)


Gold ($/Oz)




Brent Crude (Oil) $




There are of course many indices to choose from; however, it is of note that the US markets have clearly taken to President Biden well, and that the global oil price is rising, in part on demand, as economies start to get moving again.

It is clear that many mature economies are looking to gear up their economies, partly through the additional burden of debt, to get things going. This is also recognised by the IMF in their mainly positive outlook report published in April 2021. However, the successful roll out of various vaccines is likely to play a significant factor in our overall return to 'normal', whatever that is now.

Keith Churchouse FPFS


CFP Chartered FCSI

Chartered Financial Planner

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