ii comment on inflation falling to the lowest level since 2016

Our expert shares his views on the latest inflation figures.

-    Average cash balances creeping up on interactive investor from an average of £7,259 at the beginning of the year to £8,109 by the end of May 2020

-    Are investors waiting for an entry point, or just feeling generally cautious about the economy?

Commenting on the fall in inflation to 0.5%, the lowest level since June 2016, Myron Jobson, Personal Finance Campaigner, interactive investor, says: “The decline in inflation comes as little surprise. A record fall in petrol and diesel prices in May is one of the key drivers pushing inflation down, while the closure of non-essential shops, restaurants, cinemas and other recreational venues have stopped prices from rising.

“In truth, inflation is not something that the Bank of England is likely to worry about in the immediate future. The key concern is to get the UK economy back on its feet, having shrunk by a record 20.4% in April as a consequence of Covid-19. But it is not all doom and gloom. There are signs of life that the UK economy is now beginning to come back to life. Stores across the countries have begun to reopen their doors to customers as part of lockdown easing measure. 

“Some economists identify deflation as one of the possible challenges ahead. While there were snaking queues as high street shops reopened this week, this could well be a novelty factor. 

“Certainly, investors are hanging on to their cash. Our own data suggests the average cash balance of interactive investor customer accounts is creeping up, growing from an average of £7,259 at the beginning of the year to £8,109 by the end of May 2020. It could be because they are feeling cautious about markets, but it could equally be related to broader economic concerns.”

A poll of 1,212 interactive investor website visitors between 4.30pm on 8 June 2020 to 10.30am on 9 June 2020, suggests that 50% of investors think that, while they are positive on markets, the rally is too much, too soon – and they expect some more bumps in the road. 

Almost a fifth (19%) think that the stock market rally is completely unjustified given the economic impact of the pandemic. A bullish 9% think that the rally is fully justified by recovery potential, and should go even higher, but a further 9% temper this by saying that while the rally is fully justified by recovery potential, current stock market levels feel about right. Some 13% said they don’t know.