Everything is getting more expensive – including money

Investors are about to start feeling rather more pain, says Merryn Somerset Webb – from the rising price of money.

Andrew Bailey, governor of the Bank of England
Central bankers like Andrew Bailey are set to inflict more pain
(Image credit: © Hollie Adams/Bloomberg via Getty Images)

Life has been getting more expensive. Anyone in doubt (not very many people at this point, I think) need only look to the latest releases on the matter from the Office for National Statistics. In the latter half of 2021, households in all income brackets saw their costs rise substantially – higher-income households by slightly more, thanks in part to rising transport prices (the better off drive more than the worse off), but everyone by well over 5%.

The British Retail Consortium had numbers out this week, too: according to its latest Shop Price Index, prices in the UK’s major outlets are rising at their fastest pace since 2011 – up 2.7% overall in the 12 months to April (food was up a little more at 3.5%). This doesn’t sound too bad in the great scheme of things. But look at the underlying cost pressures (all manufacturers report higher price rises in their inputs), and at last month’s numbers (2.1% and 3.3%), and you get a sense of the trend. Up.

These prices are important (we feel them immediately). But investors will, I’m afraid, be starting to feel rather more pain from a different price – the price of money. Interest rates are rising everywhere – Australia has, for example, just seen its first rate rise in a decade. That will be making life mildly more difficult for those wanting to buy houses and those with variable-rate mortgages.

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I say mildly because in most countries, rates remain ridiculously low relative to inflation – new mortgages come in at around 1.7% in the UK. It will also be making life very much more difficult for those with portfolios of once-overpriced growth stocks (a group which I hope does not include too many MoneyWeek readers). That bubble has begun to burst – albeit rather more dramatically for some than for others (for example, the miseries that are Meta and Netflix).

No one can save you – look for value

The media has been looking to the state for a solution to all of this. They won’t get one. Chancellor Rishi Sunak might not be quite the savvy political operator some thought, but he does seem to want to repair some of the fiscal damage he caused to the UK during the pandemic.

Actual austerity might not be on the agenda for this government (or any) but there are unlikely to be tax cuts (expect rises instead) or new cash handouts either. There is also going to be very little in the way of new ideas: that Boris Johnson’s latest policy suggestion is the return of the very expensive and horribly short-termist right-to-buy policy tells you all you need to know.

Central banks can’t really help either: what is left of their inflation-busting credibility relies on them raising rates from here. There is, I am afraid, no one to protect us from rising prices or falling markets. All you can do, then, is to look for a degree of protection.

That means buying things that are not bonds (the prices of which fall as interest rates rise) and that are not valued as growth stocks. Metals are still a good bet. And keep looking for value. It does exist – this week, for example, we look at Singapore, which after years of underperformance can offer the one thing most markets cannot: prices that make some sense.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.