Ashby: Cash is no longer king

The recent Barclays Capital Equity Gilt Study 2011, which looks at UK asset returns since 1899, contains a remarkable statistic: the inflation-adjusted return from holding cash in 2010 was -4.1%; the worst return for UK savers since 1975.

In contrast, all other major UK asset classes produced positive returns in 2010 in real terms: UK equities +8.9; gilts +4.4; corporate bonds +3.9; and index-linked +5.3. The poor real return from cash is understandable, as the Bank of England has refused to raise interest rates for fear of pushing the UK economy back into recession, despite inflation consistently exceeding its estimations. As a result, UK savers have been offered the bank base rate of just 0.5% at a time when inflation has increased towards 5% – a material decline in the value of cash in real terms. Despite prediction...