Perspective

How inflation is impacting our clients


Even before Russia’s invasion of Ukraine in late February, clients were concerned about inflation. Official UK inflation came in at 5.5% in January, its highest level in almost 30 years.

Inflation impacts everyone differently. Some clients are concerned about the returns (the negative real returns, to be precise) that they are earning on their cash or fixed income holdings. Others have worries that relate specifically to their own circumstances such as their business interests.

Of course higher inflation, and in particular the prospects of continued energy price inflation stemming from events in Russia and Ukraine, will affect all of our clients’ investments. Inflationary forces will ripple out and alter the course of wider economic activity, affecting companies’ earnings and profitability – as well as touching many aspects of our own lives.

These issues have inevitably cropped up in our conversations with clients. And in some circumstances, there are actions as a result. We are helping some clients adjust their liquid holdings in cash or fixed income, for example, to capitalise on slightly higher interest rates and yields. This is a positive – after many long years of near-zero rates – but of course in after-inflation or “real” terms these returns remain negative. Interest rates and bond yields may have risen but inflation is rising faster, exacerbated by rising food and energy costs.

I love my job for many reasons, but primarily it is because I get to talk to such a wide range of clients. Many are enormously knowledgeable in their own fields, and from them I can garner insights which inform my own understanding of world events and consequences. I recently spoke to one family; this family owns a large agriculture business and a leisure business. The prospects of yet higher inflation pose very specific threats to their interests. Both businesses face fierce wage pressures as workers are in short supply, due to a combination of factors including Brexit and Covid. For the leisure business, the lack of suitably qualified staff is especially problematic.

Fertiliser costs have gone up too, for the agriculture business, but as it primarily produces organic food this has had less of an impact and it will be partially offset by rising agriculture prices for crops.

Interest rates and bond yields may have risen but inflation is rising faster, exacerbated by rising energy costs.

On the other hand, both rising food and energy costs have taken a toll on their leisure company. It operates at the top end of the industry so preserving client service is paramount. Rising energy costs will have a powerful effect here, and will probably mean a careful eye needs to be given to future pricing.

Inflation and returns are by no means clients’ only worries. The invasion of Ukraine is a humanitarian crisis involving huge numbers of displaced people and hardship. Many clients are eager to help as best they can – we offered to help with their donations to the Disasters Emergency Committee – Ukraine Appeal and were deluged with requests. We frequently get questions about philanthropy and effective ways in which to give and are fortunate to be in a position to give advice and support to our clients.

Our thoughts remain with the people of Ukraine and we are grateful to our generous clients. Meanwhile, we are focused on navigating the markets and managing our clients’ portfolios through these difficult times.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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James Brennan

James Brennan

Portfolio Director james.brennan@cazenovecapital.com