Outlook for 2013: Holding too much cash will erode value

 

Graham Gordon, partner and head of financial planning and wealth management at Moore and Smalley, gives his thoughts on 2013.

 

My main prediction for 2013 is for interest rates to remain very low and I would be very surprised if we saw any move at all on interest rates throughout next year.

 

Meanwhile, it’s all well and good having a target rate of inflation, but inflation in the UK is being very heavily influenced by imported costs, such as energy and food prices which are continuing to increase. This is unlikely to change anytime soon, which means inflation will remain stubbornly high.

 

From and investment point of view I would say take your profits when you can. In the long run holding too much cash is a mistake because interest rates are so low that rates of return will be below inflation and therefore value for money is being eroded.

 

I would also expect to see some further quantitative easing from the Bank of England because something has to be done if the markets jitter.

 

On the whole I think we will see more of the same – an underlying weakness in the economy with some good news and some bad news. The economy may well tip back into recession and bounce back out again.

 

I think we shouldn’t be too negative in 2013 because this is part of the problem. There is always the potential for things to surprise on the up side and as a nation we need to gather some collective self belief that we can once again compete on the world stage by increasing productivity.

 

We need to be building on the financial sector in the right way and see this situation we’re in as an opportunity to make a difference.