Pension investors should stress test their portfolios and ensure they have contingency plans in place amid the tense geopolitical landscape and uncertain financial markets, international economist Dame DeAnne Julius has said.

Speaking at the PLSA Investment Conference 2022, Julius conducted a session assessing the economic conditions in the UK and around the world, and how they were likely to evolve over the next 12 months.

“I think there will be a number of things will be much better [in a year’s time] than today, and of course since you are investing for long-term savers, you do need to think long term, not about the next six months necessarily,” she stated.

“I think inflation will almost certainly be lower than it is today. I don’t think it will get down to 2 per cent, I think we will still be pushing it down a year from today.

“I think the FTSE will continue to do better a year from now than the US or EU because of its mix of companies.”

However, when looking at the potential negative developments over the next 12 months, Julius noted that interest rates will “certainly” be higher.

“Real rates may still be negative a year from now because if inflation is in the 3-4 per cent range I don’t expect British interest rates to be in the 4-5 per cent range, I think that would be too much of a shock for the financial markets, too much of a shock for the Bank of England to get from where it is today to there, and I think that instead they will assume that some of these modelling will continue to disappear,” she said.

When looking at how pension investors can prepare themselves and their clients, Julius urged the room not to rely on official forecasts and to challenge conventional thinking, and to prepare for the potential sudden changes they may face.

“Think about what are the leading indicators, new developments and things that maybe you should follow a little more carefully than you are at present because they are not very important at present,” she continued.

“Cyber currencies – that’s a really interesting area that’s worth thinking about. It is important in this kind of geopolitical environment to scan the political horizon as well as staying close your business clients in particular. That means doing stress testing of your allocation model, it means doing contingency planning if a series of unlikely things happen and also perhaps your business model.”

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