Investors today are holding more cash than ever and this resurgence is not surprising.
The Bank of England's monetary tightening policy continues to drive up variable interest rates to multi-year highs, with the most recent hike bringing the central bank's base rate to 4.25%. This allows cash investors to achieve risk-free and reasonable returns.
The flight towards cash is also driven by its stable, haven appeal. This has become stronger than ever as investors continue to want their money in safer assets in the short term, or until economic confidence improves enough for them to invest cash in stocks or bonds again.
Yet, the rolling crises that make investors nervous show no signs of abating. The cost-of-living crisis, risk of recession, and UK inflation will continue to be top-of-mind issues for this year.
Meanwhile, higher interest rates, eroding confidence in financial markets, and lacklustre returns from equity markets all support the longer-term case for cash class over the coming year.
