Economic Outlook: What can charity investors learn from the UK budget?

01 Apr 2021 Expert insight

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Society's reliance on the charity sector has ballooned in the past year.

Economic recovery in itself will not lighten this burden. Fundraising activities are still impeded by lockdowns and social distancing. That makes the safekeeping of charity financial reserves through vigilant investing vital. So, how should charity investors interpret Rishi Sunak’s budget speech on the 3 March?

Speculation in the lead up to the budget centred around the inevitable question of tax. The UK government has borrowed vast quantities to support the economy through the lockdowns. If 2021 was to be the year of great recovery, then is it not also time to start the great payback?

The budget dispelled these concerns, at least for now. The rescue package will continue to grow into this year, resulting in a cumulative £344bn of support being handed to households, businesses and the public sector, OBR data shows.


The next intention is to bolster the recovery. People have clearly suffered greatly over the past 12 months; but people have also saved. In all, UK households and non-financial companies will have saved £300bn, or 14% of GDP, according to data from the Bank of England. The government is working out how to encourage people and companies to put this back into the economy. When considering this renewed bout of stimulus, it would be wise to wonder if we are entering an inflationary environment. Firstly, interest rates are at historic lows, encouraging people to spend rather than save. Secondly, releasing pentup consumer demand may well push prices up. Raising interest rates – the usual counter-reaction – on such a large base of debt would be expensive.

We have not seen significant inflation for 40 years. Charity investors need to consider how their investments might fare in this new environment. Conventional bonds will certainly suffer, as interest rates will remain below inflation. And equities are not necessarily safe either.

The chancellor’s message is plain: rescue and recover before repair. Spending now should help the UK economy to rebound swiftly. But continued spending may well also see the return of inflation, and it is high time that investors consider what that might mean for their portfolios.

Alexander Johnstone is an investment associate at Ruffer   

Ruffer LLP is a limited liability partnership, registered in England with registered number OC305288 authorised and regulated by the Financial Conduct Authority. The information contained in this article does not constitute investment advice or research and should not be used as the basis of any investment decision.


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