News in Review

“I don’t think that we can say definitively that interest rates have peaked”

Last week, during their final meeting of 2023, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) voted by a six to three majority to retain Bank Rate at 5.25%, with the minority voting to the rate by 0.25%. This outcome was widely predicted, with all but one of 68 economists in a recent poll expecting the BoE to hold Bank Rate.

BoE Governor Andrew Bailey said that it’s “too early” to speculate about when UK interest rates will be cut, adding, “I don’t think that we can say definitively that interest rates have peaked. I hope that we are at the top of the cycle.” Although encouraged by the efforts made to cool inflation in the UK so far, Mr Bailey said there is still a “persistent element” to inflation which “we have got to take out.”

From an inflation perspective, the MPC’s December summary outlines that Consumer Prices Index (CPI) inflation is expected to stay close to its current rate around the turn of the year, with a temporary increase in service price inflation expected in January. The report reiterates that, ‘monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term.’ The next MPC meeting is scheduled to conclude on 1 February 2024.

And across the pond

Also last week, the US Federal Reserve held its key interest rate steady for the third consecutive meeting, with the Federal Open Market Committee voting unanimously to retain the benchmark borrowing rate in a targeted range between 5.25% – 5.5%. With inflation easing, US policymakers indicated the likelihood of multiple cuts in 2024, assuming quarter percentage point reductions. Fed Chairman Jerome Powell cautioned, “It is far too early to declare victory. There is a lot of uncertainty and we’ve seen the economy move in surprising directions so we’re going to need to see further progress,” he added that the key interest rate was now “likely at or near its peak for this tightening cycle.”

UK economy shrinks in October

The most recent GDP data from the Office for National Statistics (ONS) shows the UK economy contracted by 0.3% in October, following growth of 0.2% in September. The reduction was higher than the widely anticipated 0.1% reduction predicted, with bad weather and higher interest rates impacting consumers and taking their toll on growth. The manufacturing, construction and service sectors all contracted in the month. Responding to the data, Jeremy Hunt said that while interest rates are elevated to combat inflation, it is “inevitable GDP will be subdued.”

Consumer confidence

Data released last Friday showed that consumer confidence rose in December, with households more optimistic about their future financial situation. Confidence has risen for the second consecutive month, up by two points to -22, making it an improvement on the -29 recorded the same time last year. GfK Client Strategy Director Joe Staton commented on the dataset, “Against the backdrop of flatlining economic growth, interest rates at a 15-year high and price rises potentially eroding disposable income for years to come, the consumer confidence index shows a modest improvement this month… Although the headline figure of minus 22 means the nation’s confidence is still firmly in negative territory, optimism for our personal finances for the next 12 months shows a notable recovery from the depressed minus 29 reported this time last year.”

He continued, “Despite the severe cost-of-living crisis still impacting most households, this slow but persistent movement towards positive territory for the personal finance measure looking ahead is an encouraging sign for the year to come.”

Christmas dinner more costly in 2023

If you favour a traditional festive meal on Christmas Day, this year you’re likely to find that it will cost you 13% more than in 2022, according to research. Thanks to inflation elevating food prices and energy bills, combined with poor growing conditions for vegetables, people will have to pay at least £4.14 a person for their festive meal, compared with £3.67 in 2022. This is based on analysis of the cheapest price for a basket of 11 Christmas dinner items. While the rise in cost is almost triple the overall current rate of inflation, the increase is lower than the 35% jump in the cost of Christmas dinner recorded last year (2021 to 2022).

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 (20 December 2023)

News in review

“This balanced proposal provides much-needed predictability and stability to EU car and battery makers at a time of fierce global competitive pressure”

Last week the European Commission proposed a three year postponement on the imposition of tariffs on electric vehicles (EVs) traded between the UK and the EU. Originally agreed as part of the Brexit deal, the tariff exemptions were due to end on 31 December 2023.

Although the European Commission initially rejected notions of a delay to the implementation of the rules, they agreed that a one-off extension until 31 December 2026 was required to support the bloc’s car industry, currently grappling with the residual affects of the pandemic, the war in Ukraine and fierce competition from US subsidies.

The plan, which was supported by both UK and European carmakers, is expected to be approved by European Union member state ambassadors this week. Without approval, 10% tariffs will apply to EVs traded across the English Channel.

In a statement, the EU’s trade chief Valdis Dombrovskis commented, “This balanced proposal provides much-needed predictability and stability to EU car and battery makers at a time of fierce global competitive pressure.” He continued, “It is the result of intense engagement with industry across the entire EV supply chain and with trade unions, which had expressed concern about rules that would have seen tariff barriers hit our EV exports to the UK, our largest export market.”

A spokesperson from the UK government said they have ‘listened to the concerns of the sector,’ and have prioritised finding ‘a joint solution with the EU on electric vehicle tariffs that works for both sides.’ Continuing, ‘We have a shared ambition to grow domestic electric vehicle manufacturing and battery supply chains, and this proposal is a positive step towards providing long term certainty to the industry while ensuring it remains globally competitive.’

Crucially the delay will provide an opportunity for the UK and EU battery industries to increase production.

Cash use on the rise

A new report from the British Retail Consortium (BRC) shows that cash transactions have increased for the first time in a decade, accounting for 19% of all transactions last year, up from 15% in 2021. This rise can be attributed to the fact that cash has allowed households to budget more effectively during the cost-of-living crisis, as well as an organic return following the rise in contactless payments at the peak of the pandemic. Over three quarters (76%) of transactions were made by card, down from 83% in 2021, with debit cards being used for 80% of these transactions. Trade body UK Finance expects the use of cash to decline over the coming years, once cost-of-living pressures have subsided.

Household mortgage borrowing over the longer term

The latest Financial Stability Report from the Bank of England (BoE) has highlighted that fewer households will find it hard to keep up with their mortgage payments than previously estimated, as many households are opting to borrow over longer time periods to manage higher interest rates. Over a tenth (12%) of new mortgages are for terms of over 35 years, with the proportion of new loans extended by over 30 years now topping 28%.

By the end of 2024, nearly half a million households are expected to spend over 70% of their post-tax income on their mortgage, down from the figure of 650,000 households predicted by the BoE in the summer. However, the report does highlight the scale of payment shocks faced by some mortgage holders, with estimates showing just under 900,000 can expect their mortgage payments to increase by over £500 a month because of higher interest rates.

Average mortgage rates fall

Ahead of the Monetary Policy Committee decision on Bank Rate this Thursday, Moneyfacts has revealed that average two and five-year fixed mortgage rates have dropped to 6.04% and 5.65% respectively and now sit at their lowest levels since June 2023. The data also shows that mortgage availability rose for a fifth consecutive month to its highest level in over 15 years, standing at 5,694 products. Providers are competing to attract a smaller pot of new homeowners and to keep hold of existing customers.

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 (13 December 2023)

‘Dog funds’

According to the latest data1, the number of ‘dog’ funds have increased by 27% since February this year, that represents 56 equity investment funds versus 44 earlier in the year, but a reduction on the 86 dog funds identified in January 2022. 

A ‘dog’ fund is defined as one which has failed to beat its benchmark over three consecutive 12-month periods and has underperformed by 5% or more over that entire three-year period. 

Almost three-quarters of the dog funds’ total asset value (£32.14bn, up from £4.49bn) can be attributed to the global sector, where the number of dog funds rose from 11 to 24 during the period. 

A sense of perspective 

We all know that investment performance can be impacted by many factors and as the risk warning says – past performance is no guide to the future. If a fund has found itself in the doghouse it doesn’t necessarily mean it should be disposed of immediately. The fund managers are likely to be taking action to improve the performance, perhaps changing managers or redesigning the fund’s investment strategy. Sometimes it can be worth retaining a fund while it’s undergoing this process. Importantly, knowing why a fund is underperforming will inform the right course of action. That’s what we can determine. 

Review review review 

Trust us to identify any poor performers and advise you whether it’s worth sticking with those funds for the time being, or whether it’s time to look for other opportunities. There are many factors to consider in addition to fund performance before taking any action, such as your risk attitude, tax position and overall asset allocation, so rely on us to advise the appropriate course of action. 

1Bestinvest, 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.

FIRE investing

Many of us dream about retiring early so we can devote more time to things we enjoy; but financial realities inevitably mean few of us actually realise those dreams. A growing number of people though are turbo-charging their chances of early retirement success by embracing the FIRE principles of investing. 

We didn’t start the fire 

The FIRE movement began in the US but now has a growing band of UK-based devotees. The acronym stands for ‘Financial Independence, Retire Early’ with followers adopting extreme saving techniques in order to invest as much as possible during their working years so they can attain financial independence at a relatively young age. For some, the ultimate goal is retirement in their late thirties or early forties, while for others it’s simply the financial freedom to be able to work part time. 

Playing with fire 

Some of the key principles associated with the FIRE movement include maximising savings, with followers setting aside up to 70% of their income every month; paying off all debt, including a mortgage; and living exceptionally frugally. Devotees also save via investment products, such as a stocks and shares ISA, in order to maximise returns while sheltering proceeds from the taxman. 

Eternal flame 

Another pillar of the FIRE movement is the ‘4% rule’, a formula used to calculate when someone has enough money to stop work. In simple terms, 4% is the amount someone can typically afford to withdraw from their retirement pot each year without too much risk of running out of money. So, if someone expected to spend £20,000 a year, they would need a pot worth at least £500,000. 

Light my fire 

Creating a clear, appropriate investment goal is key to financial planning success, and FIRE investors have certainly nailed that. Furthermore, the basic principles do make sound financial sense. So, if early retirement is a burning desire for you, it might just be worth joining the FIRE brigade. 

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.

Interest-only searches on the up

The number of searches relating to interest-only mortgages soared by 53% in June, as borrowers sought out ways to lower their monthly expenditure. 

More interest in interest-only 

Research1 shows that ‘interest-only mortgages’ was the most common search term in August, ahead of other staples like ‘buy-to-let’ and ‘fixed-term’. 

The jump is likely to be linked to the government Mortgage Charter launched in that month to support homeowners. As a result, many borrowers now have the choice to swap to an interest-only mortgage for up to six months, if needed. 

Here to talk 

In turbulent economic conditions, there is lots of help available if you are struggling to keep up with repayments. Get in touch today to see how we can help. 

1L&G, 2023 

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

News in Review

“A critical turning point”

World leaders gathered in Dubai, United Arab Emirates (UAE), last Thursday for the 28th United Nations climate change conference (COP28). At the invitation of UAE President, Sheikh Mohamed bin Zayed Al Nahyan, King Charles addressed heads of state, leaders of governments and delegates at the opening ceremony.

The King called on those attending the conference to make COP28 “a critical turning point” and gave this warning, “We are carrying out a vast, frightening experiment of changing every ecological condition, all at once, at a pace that far outstrips nature’s ability to cope … our choice is now a starker, and darker, one: how dangerous are we actually prepared to make our world?”

President of the European Council, Charles Michel, called for increased and rapid global action to keep the global temperature rise within 1.5 degrees saying, “The Earth belongs to our children. This is not an advertising slogan; it is an existential reality. The decade ahead is crucial, and we are fully mobilised to work with each of you to protect humanity.”

On Monday, the gap in climate finance took centre stage, with UAE pledging $270bn in green finance by 2030 through its banks. Several development banks made fresh moves to scale up their funding efforts, including agreeing to pause debt repayments when disaster strikes. COP28 President Ahmed Al-Jaber said, “The scale of the climate crisis demands urgent and game-changing solutions from every industry. Finance plays a critical role in turning our ambitions into actions.”

Automotive industry sees remarkable recovery

Following a few difficult years for the automotive industry, things appear to be looking brighter. According to the Society of Motor Manufacturers and Traders (SMMT), UK car manufacturing output was up by 31.6% in October, with factories producing over 91,000 units. Production for the home and overseas markets were revealed to have risen by 23.9% and 33.4% respectively, whilst exports were shown to be responsible for driving a 16.7% uptick in year-to-date volumes. Investment is currently flooding into the industry, with around £4bn committed by the government and industry combined in November alone.

Mike Hawes, SMMT Chief Executive, said, “These figures, coming on the back of a series of significant investment announcements, signpost a bright 2024 for the UK automotive sector. Government and industry are committing billions to transform the industry for a decarbonised future… automotive remains one of the country’s most critical industries, delivering jobs, productivity and economic growth across the country.”

House price recovery continues into November

Despite predictions of a housing market crash, house prices continued to recover in November with 0.2% growth month-on-month, according to the latest Nationwide House Price Index.

While year-on-year growth remained sluggish in November (at -2.0%), this is up over a percentage point from -3.3% in October and represents the strongest annual growth in house prices since February 2023.

There have also been significant changes in expectations for the future of Bank Rate, with many investors now believing that rates have peaked at 5.25% and could fall to around 3.5% in the coming years. Experts believe that this will relieve some of the pressure on affordability that has dampened housing market activity over the past year.

Robert Gardner, Nationwide’s Chief Economist, commented, “While mortgage rates are unlikely to return to the lows prevailing in the aftermath of the pandemic, modestly lower borrowing costs, together with solid rates of income growth and weak/negative house price growth, should help underpin a modest rise in activity in the quarters ahead.”

Second home market

New research from GetAgent, analysing data from the Office for National Statistics (ONS), has revealed that there are 141,245 second homes in England and Wales, the estimated total value of which is £43.5bn. Looking at the analysis, flats are the most common property type for a second home, with 42% of the market allocated to this type. Followed by detached homes (23%), which although accounting for just under a quarter of the market, have the largest share of the market by value (£15.9bn). Terraced properties follow closely behind, representing 21% of the overall market, with semi-detached homes the least prevalent (13% of market stock).

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 (6 December 2023)

Tax toll on prudent savers 

Taxes on savings and dividends are set to top £24bn this fiscal year in what is being seen by some as a fresh attack on savers who have shown prudence and thrift. 

Savers hit… 

Higher interest rates mean that more savers are being drawn into paying tax by crossing the Income Tax savings threshold. Interest earned on savings is only tax-free up to a maximum of £1,000 a year for basic rate taxpayers and £500 for those paying the higher rate. HMRC is expected to raise £6.6bn in 2023-24, which is more than five times higher than two years ago. 

.. and those getting dividends  

Individuals who own significant dividend-paying stocks or rely on dividends as a primary source of income have also been hit, with the annual Dividend Allowance having been halved from £2,000 to £1,000 in April 2023, and halving again in April 2024, to stand at just £500. The take on Dividend Tax is set to increase by almost £2bn to £17.6bn this tax year, according to new figures from HM Revenue and Customs (HMRC). 

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.

Let’s talk it through

A pandemic closely followed by a cost-of-living crisis has undoubtedly created a challenging financial backdrop for us all and inevitably heightened money-related stress and anxieties. At times like these, it’s more important than ever to open up and talk any concerns through with loved ones or a professional adviser in order to protect both financial and mental wellbeing. 

An intricate link 

The sheer volume of negative news stories relating to the economy and household finances makes it almost inevitable that this doom and gloom plays on people’s minds. Research highlights a clear, if intricate, link between financial and mental health, with a poll conducted by the Money and Mental Health Policy Institute revealing that 86% of people experiencing mental health problems believe their financial situation worsened their mental wellbeing. 

Long-term outlook 

While it is obviously normal to worry about finances, things are not usually as bad as people fear. This is particularly true for those who have developed a well-structured long-term financial plan. In this case, talking through any potential problems with us typically provides much-needed reassurance and can ease any concerns you may have. 

Emotional value of advice 

Indeed, while financial advice clearly delivers benefits on many fronts, emotional support is one aspect particularly valued during challenging economic times. We are able to provide clients with a more holistic market insight that considers positive as well as negative factors and provides a sharp focus on potential opportunities. This can bring considerable comfort and peace of mind to clients, with the reassurance of knowing long-term financial plans remain firmly on track. 

We’re here for you 

So, if you’re feeling stressed or anxious about any aspect of your finances please get in touch. 

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.  

Economic Review – November 2023

OBR cuts economic growth forecast

Revised forecasts from the Office for Budget Responsibility (OBR) suggest the UK economy is set to grow more slowly over the next two years than previously predicted.

Chancellor Jeremy Hunt unveiled the independent fiscal watchdog’s latest projections during his Autumn Statement delivered on 22 November. The updated forecast predicts the economy will expand by 0.6% this year and then by 0.7% in 2024 and 1.4% in 2025. While the 2023 figure is a significant improvement on the OBR’s previous prediction of a small contraction, the other two figures both represent large downgrades.

Forecasts published earlier in the month by the Bank of England (BoE) also point to a sluggish growth outlook. While not predicting a recession, the Bank expects almost no growth at all from now until 2025, with Bank Governor Andrew Bailey expressing concerns over the economy’s potential to grow. Third quarter gross domestic product (GDP) figures released by the Office for National Statistics (ONS) also added to the subdued picture, with the economy flatlining between July and September.

Data from the latest S&P Global/CIPS UK Purchasing Managers’ Index, however, was more encouraging, with the preliminary composite headline figure unexpectedly rising to 50.1 in November. This was significantly above October’s 48.7 reading and moved the index back above the 50 threshold that denotes an expansion in private sector output.

S&P Global Market Intelligence’s Economics Director Tim Moore said, “The UK economy found its feet again in November as the service sector arrested a three-month sequence of decline and manufacturers began to report less severe cutbacks to production schedules. Relief at the pause in interest rate hikes and a clear slowdown in headline measures of inflation are helping to support business activity, although the latest survey data merely suggests broadly flat UK GDP in the final quarter of 2023.”

Inflation rate falls sharply

The latest consumer price statistics revealed a significant drop in the UK headline rate of inflation, although the BoE Governor has warned that getting the rate to continue falling back to target will be “hard work.”

Data published last month by the Office for National Statistics (ONS) showed the Consumer Prices Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – stood at 4.6% in October. This represents a significant fall from September’s 6.7% figure and was below analysts’ expectations which pointed to a rate of 4.8%.

ONS said the decline, which was the largest monthly drop since April 1992, was mainly driven by a steep reduction in household energy bills compared to last year’s levels. There was also some evidence of a wider softening of price pressures, with some sectors, such as overnight hotel accommodation, witnessing a notable easing in annual inflation rates.

Despite October’s large fall, the CPI rate does remain significantly above the Bank’s 2% inflation target and, in recent weeks, BoE policymakers have warned that the ‘last mile’ of getting it all the way back down to target is likely to be tough. For instance, commenting on this year’s inflation decline during an interview with news website Chronicle Live, the BoE Governor said, “The second half, from there to two, is hard work.” 

Early last month, the BoE’s Monetary Policy Committee (MPC) voted to keep interest rates on hold for a second consecutive meeting and stressed it will not be cutting rates any time soon. The Bank also warned inflation might not fall as quickly as some are hoping, with its latest forecasts predicting the CPI rate will only return to target by the end of 2025. The next MPC interest rate announcement is scheduled for 14 December.

Markets (Data compiled by TOMD)

Global indices largely closed in positive territory as November drew to a close, supported by easing inflation data in the EU and US at month end. Expectations of a peak in US interest rates buoyed equities globally.

In the UK, the FTSE 100 closed the month on 7,453.75, a gain of 1.80%. Meanwhile the mid-cap focused FTSE 250 closed up 6.73% on 18,233.74, while the FTSE AIM closed the month on 713.78, a gain of 4.99%.

A robust corporate earnings season boosted Japanese equities in the month, with the Nikkei 225 registering a monthly gain of 8.52% to close the month on 33,486.89. On the continent, the Euro Stoxx 50 ended November on 4,382.47, a gain of 7.91%.

During Q3, the US economy grew faster than expected according to new data at month end, further demonstrating its resilience. The Dow Jones Index closed November up 8.77% on 35,950.89, while the NASDAQ closed the month up 10.70% on 14,226.22.

On the foreign exchanges, the euro closed the month at €1.15 against sterling. The US dollar closed at $1.26 against sterling and at $1.08 against the euro.

Brent Crude closed the month trading at around $81.50, a loss of over 4%, as concerns over global demand weigh and the latest OPEC+ meeting failed to result in a commitment to reduce production. Gold closed the month trading at around $2,035 a troy ounce, a monthly gain of 1.93%, supported by expectations that the Federal Reserve could cut interest rates, enhancing the appeal of the non-yielding precious metal.

Pay growth outstripping inflation

Earnings statistics released last month showed real wages rising at the fastest rate for two years, although there are also signs that nominal pay growth may have started to ease.

According to the latest ONS figures, average weekly earnings excluding bonuses rose at an annual rate of 7.7% in the July to September period. After adjusting for inflation, regular pay increased by 1.3% on the year; this represents the largest rise in real earnings since the three months to September 2021.

The data release did, however, suggest that nominal pay growth may now have peaked, with the latest figure slightly lower than the rate recorded during the previous three-month period. This slowdown has been particularly noticeable in certain industry sectors, including construction and manufacturing, as the jobs market begins to cool.

Last month also saw the Chancellor confirm that the National Living Wage will rise to £11.44 an hour from April 2024. The move, which equates to a 9.8% increase from its current level, will boost the earnings of around two million workers aged 23 and over. In addition, the Chancellor announced that, for the first time, the National Living Wage will also apply to those aged 21 and over from next April.

Retail sales fall again

Data recently released by ONS showed a further monthly decline in retail sales volumes and more recent survey evidence suggests little sign of an imminent revival in retail activity.

Although economists had expected a small rise, official statistics revealed that the volume of products sold in the UK actually fell by 0.3% in October. This follows a downwardly revised decline of 1.1% in September to leave total retail sales at their lowest level since early 2021. ONS noted that retailers felt ‘cost of living, reduced footfall and the wet weather in the second half of the month’ all contributed to October’s decline.

The latest CBI Distributive Trades Survey did report some improvement in sentiment across the retail sector during November. However, the headline measure of sales volumes fell year-on-year for the seventh consecutive month while a majority of retailers also said they expect sales volumes to be below seasonal norms in December.

Commenting on the findings, CBI Principal Economist Martin Sartorius said, “Retail sales have languished in negative territory for much of 2023, reflecting the impact of strained household finances on the sector’s fortunes. Though sentiment has picked up slightly, firms do not feel that a revival in activity is imminent.”

All details are correct at the time of writing (01 December 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.

Autumn Statement 2023

“Our plan for the British economy is working”

On 22 November, Chancellor of the Exchequer Jeremy Hunt unveiled the government’s latest tax and spending plans saying “we back British business” announcing 110 growth measures which he said would boost business investment by £20bn a year. The Chancellor said the government had taken difficult decisions to put the economy “back on track” and claimed, “our plan for the British economy is working.” He also stressed that “the work is not done,” before outlining his package of measures which he said would cut business taxes, raise business investment and get more people into work.

OBR forecasts

Mr Hunt started his statement by revealing updated economic projections produced by the Office for Budget Responsibility (OBR) which he said showed the government had delivered on all three of the Prime Minister’s economic priorities: to halve inflation, grow the economy and reduce debt.

The Chancellor began with inflation, reiterating that recently released official data showed the Consumer Prices Index (CPI) rate had more than halved from a peak of 11.1% in October 2022 to 4.6% last month. He then detailed some of the latest OBR projections, which suggest inflation will fall to 2.8% next year and hit the government’s 2% target in 2025.

Growth measures

In terms of growth, Mr Hunt said the OBR now expects the economy to expand by 0.6% this year, 0.7% in 2024 and 1.4% in 2025. While this year’s figure is a considerable improvement on the OBR’s previous prediction of a small contraction, the forecast for the following two years represents a relatively sharp downgrade from the previous forecast of 1.8% for 2024 and 2.5% for 2025.

The Chancellor acknowledged that the private sector is more productive in countries like the US, Germany and France and that, “If we want those [growth] numbers to be higher, we need higher productivity.” He also said that the measures being announced today would help close the productivity gap by “boosting business investment by £20bn a year.”

Backing British business

The 110 measures aimed atcreating the right conditions for the private sector to thrive include:

  • The ‘full expensing’ tax break for businesses has been made permanent, at a cost of £11bn a year – representing “the largest business tax cut in modern British history”
  • Delivering energy security and the net zero transition by removing barriers to investment in critical infrastructure
  • An extension to the 75% business rate discount for retail, hospitality and leisure businesses
  • The simplification of Research & Development (R&D) tax reliefs and lowering the threshold for additional support for R&D intensive loss-making SMEs
  • To unlock investment, support levelling up and enable the UK to seize growth opportunities through the transition to net zero, the government is making £4.5bn available in strategic manufacturing sectors – auto, aerospace, life sciences and clean energy – from 2025 for five years.

Turning his attention to the small business community, Mr Hunt said, “I have always known that every big business was a small business once,” as he announced a package of measures designed to support SMEs across the UK. Following consultation with the Federation of Small Businesses (FSB), Mr Hunt argued that tougher regulation was needed to stop the “scourge of late payments.” He announced that businesses bidding for large government contracts over £5m will have to prove they pay their invoices within an average of 55 days, reducing progressively to 30 days. On business rates, he announced a freeze on the small business multiplier for a further year, amongst other measures.

Personal taxation, wages and pensions

As recently announced, the government will increase the National Living Wage for individuals from £10.42 an hour to £11.44 an hour, with the threshold lowered from 23 to 21-years-old, effective from 1 April 2024.

The commitment to the pensions Triple Lock remains, meaning that the basic State Pension, new State Pension and Pension Credit standard minimum guarantee will be uprated in April 2024 in line with average earnings growth of 8.5% (September 2023). The value of the new State Pension will increase in April 2024 from £203.85 per week to £221.20 per week, while the basic State Pension will rise from £156.20 to £169.50 per week.

Universal Credit and disability benefits will increase by 6.7% next tax year, equivalent to CPI inflation in the 12 months to September 2023, which is the typical basis for benefit uprating. This represents an average increase of £470 for 5.5 million households next year.

Changes to National Insurance contributions (NICs) were revealed:

  • The main rate of Class 1 employee NICs is to be reduced from 12% to 10%. This will provide a tax cut for 27 million working people. Instead of taking effect on 6 April 2024, this will take effect from 6 January 2024
  • To simplify NICs for the self-employed, from 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs (currently £3.45 a week), but will continue to receive access to contributory benefits, including the State Pension. In addition, Class 4 NICs will be cut by 1 percentage point to 8% from April 2024
  • The government is extending the NICs relief for employers of eligible veterans for one year. Businesses pay no employer NICs on annual earnings up to £50,270 for the first year of a qualifying veteran’s employment.

No changes were announced for the following allowances:

  • The Income Tax Personal Allowance and higher rate threshold remain at current levels – £12,570 and £50,270 respectively – until April 2028 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved)
  • Inheritance Tax bands remain at £325,000 nil-rate band, £175,000 residence nil-rate band, with taper starting at £2m – fixed at these levels until April 2028
  • The 2024/25 tax year ISA (Individual Savings Account) allowance remains at £20,000 and the JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limits remain at £9,000. The government will allow multiple subscriptions to ISAs of the same type every year from April 2024
  • The Dividend Allowance will reduce to £500 from April 2024
  • The annual Capital Gains Tax exemption will reduce to £3,000 from April 2024
  • The government will legislate in the Autumn Finance Bill 2023 to remove the Lifetime Allowance to clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements. This will take effect from 6 April 2024.

The latest steps to deliver the Mansion House Reforms for pensions, announced in the days leading up to the Autumn Statement, include:

  • A call for evidence on allowing individuals to consolidate pensions by having one pension pot for life
  • New investment vehicles tailored to the needs of pension schemes, which allow investment into the UK’s innovative companies.

Levelling up

Next, the Chancellor spoke about ‘levelling up’ measures designed to support growth and investment, starting with three new Investment Zones set to be introduced in Greater Manchester, the West Midlands and the East Midlands. Together, he said, these Investment Zones will generate £3.4bn of private investment and create 65,000 jobs over the next decade.

Also included in the measures:

  • A second Investment Zone for Wales covering Wrexham and Flintshire
  • Investment Zone and freeport tax reliefs to be extended from five to 10 years
  • A new £150m Investment Opportunity Fund to support Investment Zones and freeports.

Back to work

The Chancellor then took the opportunity to reinforce his Back to Work Plan – worth £2.5bn – which was published the previous week. In addition to helping over a million people with long-term health conditions, disabilities and long-term unemployment issues to find and stay in work, the Plan also imposes tough sanctions on those who can work but choose not to.

Other key points

Alcohol duty – frozen until 1 August 2024

Mortgage Guarantee Scheme – extended until the end of June 2025

Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) extension – the government will legislate in the Autumn Finance Bill 2023 to extend the existing sunset clauses from 6 April 2025 to 6 April 2035

Apprenticeships – £50m funding for a 2-year pilot to explore ways to stimulate training in growth sectors and address barriers to entry in high-value apprenticeships

Support for affected communities within the UK following the conflict in Israel and Gaza – funding that the government has already provided to the Community Security Trust will be maintained in 2024/25

Housing and planning investment – an additional £32m to unlock development of thousands of homes across the country, including funding to tackle planning backlogs in Local Planning Authorities (LPA), alongside further reforms to streamline the system through a new Permitted Development Right to enable one house to be converted into two homes

Creative industries – £2.1m of funding for the British Film Commission and the British Film Institute Certification Unit for 2024/25.

Closing comments

Jeremy Hunt signed off his Statement saying, “We are delivering the biggest business tax cut in modern British history, the largest ever cut to employee and self-employed National Insurance, and the biggest package of tax cuts to be implemented since the 1980s. An Autumn Statement for a country that has turned a corner. An Autumn Statement for Growth, which I commend to the House.”

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 of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. 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 individual circumstances.