News in Review

“The UK economy has stagnated again in recent months”

Last Friday, UK growth figures from the Office for National Statistics (ONS) showed that the economy is estimated to have shown no growth in the third quarter of the year, following an increase of 0.2% in Q2. UK gross domestic product (GDP) is estimated to have increased by 0.6% in Q3 2023 compared with the same quarter last year.

Although the economy registered no growth in the July to September period, it does compare favourably with expectations of a 0.1% fall as predicted by a Reuters poll of economists. Hopes are that, although slight, this quarterly growth will aid the UK economy from slipping into recession this year, defined as two consecutive quarters of contraction.

From a month-on-month perspective, ONS data also released on Friday, shows GDP is estimated to have grown by 0.2% in September, following a gain of 0.1% in August. Services output was the main positive contributor in September, rising by 0.2% in the month, ‘driven by growth in professional, scientific and technical activities, and human health and social work activities,’ according to ONS. The construction sector also registered growth (0.4% in September) to provide support.

Addressing the flat growth in Q3, Research Director at the Resolution Foundation James Smith, commented, “The UK economy has stagnated again in recent months, driven in part by the rapid rise in interest rates since late 2021… Britain is a stagnation nation that has struggled to secure sustained economic growth since the financial crisis. Addressing this is the central task we face as a country and must be at the heart of the Chancellor’s Autumn Statement in 10 days’ time.”

Meanwhile, Jeremy Hunt responded to the data, “Naturally interest rates do have an impact and the judgement of the Treasury is that the main reason growth has slowed is because of that.”

Powell “not confident” inflation reducing action enough

Speaking at an International Monetary (IMF) event in Washington last week, Federal Reserve Chairman Jerome Powell said that although he and his colleagues were encouraged by the slowing rate of inflation, further action may be necessary in order to maintain momentum. Addressing the commitment to bring inflation down to 2% he signalled, “we are not confident that we have achieved such a stance,” but added, “we will keep at this until we succeed.”

Surprise cabinet reshuffle

Former Prime Minister David Cameron replaced James Cleverly as Foreign Secretary in a surprise cabinet reshuffle sparked by Suella Braverman’s sacking on Monday. Cleverly becomes Braverman’s replacement at the Home Office. Steve Barclay has replaced Therese Coffey as Environment Secretary, with Treasury Minister Victoria Atkins promoted to replace him as Health Secretary. Meanwhile, former Transport Minister Richard Holden has been appointed Tory party Chairman, and Pensions Minister Laura Trott has been promoted to Chief Secretary to the Treasury, replacing John Glen. Jo Churchill MP has been appointed as Minister of State in the Department for Work and Pensions.

Other senior cabinet members remained in post, including Chancellor Jeremy Hunt, Defence Secretary Grant Shapps and Education Secretary Gillian Keegan.

Pay growth overtakes inflation

Regular pay (excluding bonuses) rose at an annual rate of 7.7% between July and September, latest official ONS figures show. This indicates a rise of 1% after taking inflation into account and represents the largest increase for two years. Other ONS figures show that the number of job vacancies continues to fall – between August and October, the estimated number of vacancies in the UK fell by 58,000 to 957,000. However, vacancies remain well above pre-pandemic levels.

Darren Morgan, ONS Director of Economic Statistics, said that the figures “show a largely unchanged picture, with the proportions of people who are employed, unemployed or who are neither working nor looking for a job all little changed on the previous quarter.”

Responding to the latest labour market figures, Chancellor Jeremy Hunt said, “It’s heartening to see inflation falling and real wages growing, keeping more money in people’s pockets. Building on the labour market reforms in spring, the Autumn Statement will set out my plans to get people back into work and deliver growth for the UK.”

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (15 November 2023)

Home Finance – In the news

Most landlords not selling yet 

Two in three buy-to-let landlords have no plans to sell any of their properties in the upcoming year, new research1 has revealed. While the new Renters Reform Bill had led some to predict a selling spree, it seems most are holding onto their investments – for now. Those with a single property (75%) and those with two or three (69%) are most likely to hold onto all their properties. In a turbulent market, rising interest rates are the main motivation for six in 10 landlords who intend to sell, a 15% jump on the previous survey. Nearly half claim that the rent they charge no longer covers their mortgage costs. 

Majority experiencing transaction delays 

More than half of people selling a property in the last year experienced delays, a survey2 has shown, with one in five seeing their transaction collapse. For more than six in 10 sellers, moving home within their timeline was an important factor when entering the market. Almost four in 10, meanwhile, believed that the requirement to provide information on their property at various points during the process contributed to the delay. 

1Landbay, 2023 

2Moverly, 2023 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments 

Wealth – In the news

More pension savers want to exclude oil 

New analysis1 has revealed an increase in the number of pension savers who would like to see the oil sector completely excluded from their pension investments, up from 15% in 2022 to 21% in 2023. Of the remaining 79%, almost half said they would only continue to invest in this sector if companies show a concrete commitment to cutting greenhouse gas emissions and improving their environmental impact. Alongside oil, investors were also concerned about companies contributing to deforestation and habitat destruction, predatory lending, and investments in alcohol and gambling. 

With COP28 kicking off in the United Arab Emirates on 30 November it will be interesting to hear further views on this from the pension and investment industry and groups such as the Net-Zero Asset Owner Alliance, plus the intentions of the oil sector in committing to net zero. 

Artificial Intelligence (AI) to be regulated 

AI is having an impact on almost all areas of life, including financial services. With the government calling on the UK to be the global hub of AI regulation, the Financial Conduct Authority (FCA) has announced its intention to regulate critical third parties, including AI services, for the UK financial sector. Commenting on the FCA’s role, Nikhil Rathi, FCA Chief Executive said, “While the FCA does not regulate technology, we do regulate the effect on — and use of — tech in financial services.” 

He added, “As the Prime Minister has set out, adoption of AI could be key to the UK’s future competitiveness – nowhere more so than in financial services.” 

1PensionBee, 2023 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

Money – In the news

Cost of raising a child soars 

Recent research1 has found that the cost of raising a child has increased by 10% over the last year, with the average UK family spending £223,256 in their offspring’s first 18 years. This works out at over £12,000 a year per child. The research looked at the different costs associated with bringing up children, ranging from essential through to leisure activities. 

End to rising wealth 

The Resolution Foundation has found that the cost-of-living crisis, coupled with the monetary policy response, has put an end to the trend of rising wealth in the UK. The independent think-tank estimates that the wealth-to-GDP ratio fell to around 650% by early 2023. This is by far the biggest fall on record as a proportion of GDP, wiping out £2.1trn of household net worth in cash terms. 

Gender pensions gap 

There is still a wide gender pensions gap – recently published government data (for 2018–20) shows a gap between median male and female private pension wealth of 35% overall. The size of the gap varies according to age, with women aged between 45 and 49 seeing a 47% chasm relative to men in the same age group. 

1Moneyfarm, 2023 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

‘Megatrends defining the future’

The emergence of new trends and advancements such as the advent of AI, electric vehicles and other ‘big picture’ global innovations are set to shape our future, presenting opportunities to investors interested in capturing these themes in their portfolios. 

The United Nations Economist Network has identified five megatrends impacting social, economic and environmental outcomes, these are – climate change, demographic shifts, urbanisation, digital and disruptive technologies and inequality. The World Economic Forum have noted that ‘megatrends are defining the future… short-term investors can be opportunistic, but long-term investors have to be more strategic, particularly in the face of these megatrends.’ 

An ever-changing world creates opportunities and challenges  

Developing a strategy and adding thematic investments to a portfolio can enable investors to align their personal objectives and interests, as well as identifying and hopefully capitalising on changes believed to be disrupting established markets and industries. By combining thematic elements with a well-diversified and well-managed core portfolio, investors could achieve balance between opportunity, risk and performance. Advice to identify these potential opportunities is essential. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

New builds command premium  

New-build properties remain overwhelmingly popular despite a small drop in the number of starts in the past year. 

New home starts slip 

Work was started on 137,800 new-build homes in England during the 2022/23 financial year to the value of £55bn1, which represents a 1.4% year-on-year decline. 

Generally, a new-build house or flat is counted as a ‘start’ from the moment on-site construction begins. For example, when the foundations are laid for a block of 100 flats, that is counted as 100 ‘starts.’ 

New-build premium skyrockets  

The average new-build house price, meanwhile, rose by 13.8% on an annual basis. 

A separate study by the same business has shown that, with the average new build now valued at £425,186, the premium commanded by new homes currently sits at 52%. This astronomical difference follows a 20% increase in the premium over the course of the last year alone. 

London leads the way 

Regionally, the annual change in the number of new build starts ranges from a 13.4% increase in London to a 14% drop in Yorkshire & Humber. In terms of price growth, the South West (16%) and East Midlands (15.9%) were out in front, with London (9.3%) recording the lowest growth. 

1Sourced Franchise, 2023 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments 

Economic Review – October 2023

Inflation rate holds steady

The Bank of England (BoE) Governor has described the latest batch of inflation statistics as “quite encouraging,” adding that he expects a “noticeable drop” in the headline rate when the next set of data is released later this month.

Figures recently published by the Office for National Statistics (ONS) revealed that the Consumer Prices Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – held steady at 6.7% in September. This ended a run of three consecutive monthly declines and came in slightly ahead of analysts expectations’ of a further 0.1% fall.

ONS pointed out that the figures did include the first monthly decline in food price levels for two years. However, a sharp rise in fuel costs between August and September was the main factor that prevented the CPI annual rate from declining again. Despite remaining unchanged, though, September’s update does leave CPI below the level forecast by the BoE in early August.

The latest release did also report a fall in core inflation, which excludes volatile elements such as energy, food, alcohol and tobacco, although this decrease was again less than economists had predicted. This measure of inflation, which is typically viewed as a better guide to longer-term price trends, fell to 6.1% in September from 6.2% in August.

Commenting on the consumer prices data release in an interview with the Belfast Telegraph, BoE Governor Andrew Bailey said, “It was not far off what we were expecting. Core inflation fell slightly from what we were expecting and that’s quite encouraging.” The Governor also stressed that he expects to see a “noticeable drop” in the CPI rate when the next set of figures are published in mid-November as last year’s sharp hike in energy prices drops out of the annual comparison.

Economy stages partial rebound

Growth statistics released last month by ONS showed the UK economy returned to growth in August following a sharp decline in July, although forward-looking indicators continue to suggest the outlook remains uncertain.

According to the latest gross domestic product (GDP) figures, the UK economy grew by 0.2% in August following a downwardly revised fall of 0.6% in July. ONS said August’s modest bounce back was partly driven by the education sector, which recovered from two days of industrial action the previous month, along with a boost from computer programmers and engineers.

While analysts typically described the latest GDP data as ‘lacklustre,’ August’s figures are thought to have reduced the possibility of a recession beginning as early as the July to September period. Indeed, ONS noted that the economy would only need to have grown by 0.2% during September to avoid it contracting across the third quarter as a whole.

Data from the latest S&P Global/CIPS UK Purchasing Managers’ Index released towards the end of last month, however, does suggest that business activity across the private sector continues to weaken. The preliminary composite headline Index stood at 48.6 in October, a marginal increase from September’s figure of 48.5, but below the 50 threshold that denotes a contraction in private sector output for the third month running. 

Commenting on the survey’s findings, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “The UK economy continued to skirt with recession in October, as the increased cost of living, higher interest rates and falling exports were widely blamed on a third month of falling output. The overall pace of decline remains only modest, but gloom about the outlook has intensified in the uncertain economic climate, boding ill for output in the coming months. A recession, albeit only mild at present, cannot be ruled out.”

Markets (Data compiled by TOMD)

As October drew to a close, investors focused on major central bank meetings with the Bank of England and Federal Reserve due to meet in early November.

In the UK, the FTSE 100 closed October on 7,321.72, a loss of 3.76%. At month end losses in some mining and energy stocks weighed, impacted by declines in commodity prices following weaker-than-expected factory activity data in China. The domestically-focused FTSE 250 closed down 6.54% on 17,083.05, while the FTSE AIM closed the month on 679.85, a loss of 6.38%. On the continent, the Euro Stoxx 50 ended October on 4,061.12, a loss of 2.72%.

At month end, Asian equities struggled as disappointing activity data from China reignited some concerns over the resilience of the world’s second largest economy. In Japan the Nikkei 225 closed the month on 30,858.85, down 3.14%.

A raft of new data has highlighted resilience in the US economy. Comments from Federal Reserve Chairman Jerome Powell will be closely watched as an indicator of how long interest rates are likely to remain elevated. The Dow Jones Index closed the month down 1.36% on 33,052.87, while the NASDAQ closed the month down 2.78% on 12,851.24.

On the foreign exchanges, the euro closed the month at €1.14 against sterling. The US dollar closed at $1.21 against sterling and at $1.05 against the euro.

Safe haven demand as a result of the Middle Eastern conflict saw gold prices trading higher in the month. Gold closed October trading at around $1,996 a troy ounce, a monthly gain of around 6.76%. With traders wary of any new developments in the conflict and concerns over slowing fuel demand in China weighing, Brent crude closed the month trading at around $85, a loss over the month of 7.41%.

Jobs market continues to cool

Last month’s release of labour market statistics suggests there has been a further softening in the UK jobs market, although earnings data did reveal average pay is now rising above inflation for the first time in almost two years.

The latest figures released by ONS were dubbed ‘experimental estimates’ produced under a new calculation that attempts to account for low response rates to the labour force survey. The new data showed that, although the unemployment rate stayed unchanged at 4.2% during the June to August period, the overall level of employment fell and the rate of economic inactivity rose.

In addition, the estimated total number of job vacancies dropped by 43,000 during the three months to September, the 15th consecutive reported decline. This reduced the number of vacancies to a two-year low of 988,000, although this figure is still significantly above pre-pandemic vacancy levels recorded in early 2020.  

The latest earnings figures also revealed that regular pay rose at an annual rate of 7.8% in the June to August period, higher than the average inflation rate over the same three months. Furthermore, data revisions meant that wage growth actually outpaced inflation in the three months to July for the first time since October 2021.

Retail sales in autumnal fall

Official retail sales statistics reported a sharper than expected decline in sales volumes during September, while more recent survey evidence suggests the current trading environment remains extremely challenging.

Data published last month by ONS revealed that total retail sales volumes fell by 0.9% in September, a much larger decline than the 0.2% fall predicted in a Reuters poll of economists. ONS said it had been ‘a poor month for clothing stores’ with the unseasonable warm autumnal conditions reducing sales of colder weather gear, while the quick pace of price rises had deterred shoppers from buying ‘non-essential goods.’

The latest CBI Distributive Trades Survey suggests sales remained weak last month, with retailers reporting the joint-worst level of sales volumes for October since records began in 1983. The survey also found that retailers do not anticipate a turnaround in fortunes this month, with cost-of-living concerns and higher interest rates expected to continue weighing on consumer spending.

Commenting on the findings, CBI Principal Economist Martin Sartorius said, “As the festive period approaches, the retail sector remains in a perilous position. While slowing inflation should help to bolster households’ income in the coming months, retailers will continue to face headwinds from higher energy and borrowing costs.” 

All details are correct at the time of writing (01 November 2023 )

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

News in Review

“AI will bring new knowledge, new opportunities for economic growth… and the chance to solve problems we once thought beyond us”

Ahead of this week’s first ever Artificial Intelligence (AI) Safety Summit at Bletchley Park, Rishi Sunak delivered a speech last Thursday on the global responsibility required to address and build a shared understanding of the risks posed by AI. Also, to realise its benefits and identify opportunities for future generations.

During the speech, delivered at the Royal Society in London, the Prime Minister announced the development of a UK-based AI Safety Institute targeted to help the world assess new types of AI, the first organisation of its kind. In addition, Mr Sunak also outlined intentions for the Intergovernmental Panel on Climate Change (IPCC) to be adopted as a model for an expert panel to achieve international consensus on the state of AI science – a prime area for discussion during the summit. A package of measures were also announced to pursue possible AI opportunities, including a £2.5bn investment in computing power for use by businesses and researchers developing AI in the UK.

Summit attendees are expected to include US Vice President Kamala Harris and Google DeepMind CEO Demis Hassabis.

The five key summit objectives set out by the government are:

• A shared understanding of the risks posed by frontier AI and action required

• A forward process for international collaboration on frontier AI safety

• Determining measures that organisations should take to improve frontier AI safety

• Identifying areas for collaboration on AI safety research

• Showcasing how the safe development of AI will enable it to be used positively across the globe.

The national speech from the Prime Minister follows the publishing of a landmark AI paper from the UK government on the capabilities and risks the emerging technology poses. Mr Sunak professed, “AI will bring new knowledge, new opportunities for economic growth, new advances in human capability, and the chance to solve problems we once thought beyond us,” however he did caution, “it also brings new dangers and new fears.”

He continued, “The responsible thing for me to do is to address those fears head-on, giving you the peace of mind that we will keep you safe, while making sure you and your children have all the opportunities for a better future that AI can bring.”

The PM said his genuine belief is, “that technology like artificial intelligence will bring a transformation as far reaching as the industrial revolution, the coming of electricity or the birth of the internet.”

Strong car production growth in September

The latest data from the Society of Motor Manufacturers and Traders (SMMT) shows robust manufacturing growth in September, registering an increase of 39.8%, the highest recorded monthly growth this year and the best September in three years. That represents 88,230 vehicles, 25,105 more than the number rolling off factory lines in August. Although the SMMT state that ‘urgent action’ is needed to make sure the UK and EU trade of electric vehicles remain competitive going into 2024, when tougher rules of origin for batteries come into force.

Chief Executive at the SMMT Mike Hawes, commented on the latest dataset, “A particularly strong period of car making is good news for the UK, given the thousands of jobs and billions of pounds of investment that depend on the sector.”

Bank Rate decision

The next Monetary Policy Committee meeting will conclude on 2 November. There are expectations from a Reuters poll of economists that Bank Rate will be retained at 5.25%, with 61 of the 73 individuals polled believing this will be the case. The remaining 12 economists predict a quarter point rise to 5.50%.

On the continent last week, as widely expected the European Central Bank (ECB) retained their main interest rates.  

In the US, the next Federal Open Market Committee (FOMC) meeting is scheduled to be held on 1 November. The Fed may choose to hold rates at their current 5.25% to 5.5% range. Any indication of potential interest rate intentions into 2024 will be closely monitored.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (1 November 2023)

“British pensioners should benefit from British business success”

Chancellor Jeremy Hunt announced measures in his first Mansion House speech aimed at unlocking billions of pounds of extra pension cash to support the economy. 

According to the government, the Mansion House Reforms aim to secure the best possible outcome for pension savers, whilst strengthening the UK’s position as a leading financial centre. This is to be achieved through an agreement with pension providers to put 5% of their investments into early-stage businesses in the biotech, fintech, life sciences and clean technology sectors by 2030. The reforms are estimated to provide a £1,000 a year boost in retirement to the typical earner who starts saving at 18. 

Mr Hunt stated, “British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for a typical earner over the course of their career. This also means more investment in our most promising companies, driving growth in the UK.” 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

Your safety net

When faced with the unpredictability that life brings, it is comforting to have the support of protection cover. 

Increased household bills, mortgage and rent costs, mean that protection is more important than ever right now but, in response to these challenging conditions, some households are considering reducing their level of protection – leaving themselves vulnerable to financial shocks. 

It may seem tempting to save a few pounds by cancelling or postponing taking out cover but there is a risk that, should the worst happen, you will be left in a difficult financial position. Have you considered how you would be able to afford your monthly outgoings if your family were to lose the income of the primary earner through death or illness? 

Unique needs 

Protection is an essential part of long-term financial planning for everybody. Having the right insurance cover for your unique needs is an indispensable financial safety net for you and your loved ones.