It’s 70 years since Queen Elizabeth II took the throne. Schroders Head of Strategic Research Duncan Lamont looks at how some of our key financial metrics – from longevity to inflation, interest rates to investment returns – have moved over the decades.
The seven-decade reign of Queen Elizabeth II has seen transformations in many aspects of our lives. That includes sweeping changes to the way we invest. But some factors – including the forces that drive markets and the basic requirement to put money away for the long-term – have remained surprisingly constant.
What’s new and what’s not in this jubilee year? Read our roundup of financial facts, 1952 vs 2022.
Retirement and life expectancy
The State Pension was four years old in 1952, and the retirement age was set at 65 for a man and 60 for a woman. A 65 year-old man in 1952 was expected to live for another 12 years. Today that would be nearly 20 years.
Our ageing population will put increasing pressure on public finances in the coming years – one reason why the state retirement age has recently increased to 66, and is slated to increase further to 68 in future.
Interest rates and inflation
In June 1952 the Bank of England’s key Bank Rate was at 4%. Inflation stood at 10.5%. As the chart shows, this was one of the few periods in the last 70 years when – as now – inflation spiked sharply, rising significantly above the Bank Rate. Today the Bank Rate is 1% and inflation (CPI) just under 9%.
High inflation isn’t new to anyone who’s lived through as many decades as Her Majesty. It peaked at just under 25% in August 1975, but for almost three decades – between the early 1990s and 2021 – it barely rose above 5%. In fact at several points since 2015 there has been zero official inflation in the UK.
Interest rates have been similarly low in recent years, with the Bank Rate reaching its all-time low of 0.1% following the onset of the pandemic in 2020.
How about total inflation during the 70-year period? According to the Bank of England, what you could buy with £10 in 1952 would now cost over £202.
UK government bond (gilt) yields have recently been rising (and bond prices falling) due to a combination of soaring inflation expectations and anticipated rate hikes from the Bank of England. Today, 10-year government bonds yield around 2%. This is up from 1% in late 2021 but a long way short of the 4% they yielded in 1952.
Earnings and house prices
Houses prices were roughly six-times average earnings in 1952 (when we had an average house price of around £1,800 and earnings of just over £300).
Today prices are approaching nine-times earnings (based on the average house price of £278,000 and average earnings of £32,000).
The makeup of the UK stock market…
In 1952 the main stock market index of the day, the FT 30, was dominated by shipbuilders, carmakers and textile companies. Rather than capturing the biggest companies, FT 30 members were selected by journalists at the Financial Times to represent the companies that were significant to the UK economy at the time.
By contrast, today, over 70% of revenues generated by companies in the FTSE 100 are earned outside of the UK. Hence the index has long ceased to be a barometer for the health of the UK economy.
…and 70 years of stock market returns
From the start of 1952 up until 30 May 2022 UK equities have returned just under 12% a year (11.7%). That’s a lot more than the 6% a year investors have earned on cash (proxied by short-term Treasury bills) over the same period.*
But it hasn’t been a smooth ride. UK equities have fallen in value in 18 of those years, and underperformed cash in 26 of them.
There have been some spectacular falls and bounces en route. The UK market returned 149% in the single year 1975, for example. But this was off the back of falls of 28% and 50% in the previous two years. £100 invested at the start of that three-year period would only have been worth £89 at the end, even after the 149% bounce.*
As I like to remind people, short-term volatility and the risk of loss are the price of the entry ticket for the long term gains that stock market investing can deliver.
In the early years of the Queen’s reign, investing in shares was a rich person’s game. Only an estimated 3% of the population were shareholders in the mid 1960s.
Today, almost 80% of UK employees are members of a workplace pension scheme, through which they are likely to have some exposure to the stock market. This has democratised investing, and is allowing many more people to participate in the growth of the corporate sector.