News in Review

“Our plan will work, but we must stick to it”

Official figures released last week by the Office for National Statistics (ONS) showed that UK gross domestic product (GDP) contracted by 0.1% in May. Analysts pointed to the additional bank holiday for the coronation as a key factor in this decline.

By falling into reverse, the GDP figures came in below City forecasters’ expectations; they were also notably worse than the 0.2% expansion recorded in April. The decline raises the possibility of the UK slipping into a technical recession (two consecutive quarters of negative growth) later this year.

Darren Morgan of ONS commented, “Despite the Coronation Bank Holiday, pubs and bars saw sales fall after a strong April. Employment agencies also saw another poor month.”

Chancellor Jeremy Hunt noted that inflation was a key driver of the current slump. He stated, “The best way to get growth going again and ease the pressure on families is to bring inflation down as quickly as possible. Our plan will work, but we must stick to it.”

Five-day strike for junior doctors

Last Thursday, junior doctors began a five-day strike in England over pay. After 15 years of below-inflation pay rises, junior doctors are demanding a 35% boost to wages. These strikes are the fourth walkout by junior doctors in England since the dispute began.

As a result of the strike action, thousands of planned appointments were postponed. Senior doctors filled in to provide emergency care ahead of a separate strike by NHS consultants that is due to take place later this week. The strikes add pressure to the NHS at a time of record waiting lists. At the end of May, 7.47 million people were waiting to start routine hospital treatment, according to official figures.

“No more talks on pay” after new offer

With rising discontent and the threat of industrial action across the public sector, the government last week announced new pay offers for teachers, police officers and junior doctors.

In the new offer, police and prison officers would receive a 7% pay rise, while teachers and junior doctors would be awarded 6.5% and 6% rises respectively. The British Medical Association (BMA) called the offer ‘derisory’, but four teaching unions recommended that members accept the offer and end strike action.

Prime Minister Rishi Sunak stressed that the rises would not be funded by borrowing more or increasing taxes. He commented, “There will be no more talks on pay. We will not negotiate again on this year’s settlements and no amount of strikes will change our decision.”

Mortgage costs to rise for millions

Close to one million households will experience a rise in their mortgage payments of at least £500 a month by the end of 2026, according to the Bank of England (BoE). In a recent report, the BoE admitted that mortgage holders ‘may struggle with repayments’ on loans. It noted though that lenders are strong enough to withstand an increase in customers defaulting on repayments.

US inflation drops sharply

Last Wednesday, it was announced that US inflation in June had fallen to its slowest pace in more than two years, though analysts are still predicting that the Federal Reserve will raise rates again at its next meeting towards the end of July.

Cheaper used cars helped bring inflation down to 3% in the year to June, official data revealed a sizeable drop from 4% recorded a month earlier. Most significantly, energy prices fell 16.7% over the last year, with gas prices down 26.5%.

The latest inflation reading is significantly lower than a peak of more than 9% recorded in June 2022 and represents the slowest rise in prices since March 2021. Core US inflation, meanwhile, fell to 4.8%, the lowest since October 2021.

Speaking to Congress, Federal Reserve Chair Jerome Powell said, “Over the past year, we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do.”

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 (19 July 2023)

Are you a new tax year front runner?

The longer days of summer are the ideal time to think about what you want for yourself and your family in the future, to set specific financial goals and to benefit from getting plans organised early in the tax year. 

Setting your goals 

Considering your individual financial goals and developing a financial plan that aligns with those goals can help you to identify what is important to you, to stay disciplined and focused on your long-term objectives, avoiding short-term market fluctuations or investment fads. 

The early bird 

Investing early in the tax year can offer several benefits: 

  • It gives your investments more time to grow tax-free or tax-deferred, benefiting from compounded returns 
  • It can help you avoid a last-minute rush to make contributions before the end of the tax year, which can lead to mistakes or missed opportunities 
  • There is time to spread your contributions over the year, making budgeting easier. 

Work with us 

We can work with you to identify your financial goals and set up plans so that you can get ahead early in the tax year, giving you powerful strategies for building wealth and achieving financial security. 

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. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning. 

Global economy – Signs of optimism

Although the global economy continues to face significant headwinds, statistics released during the first few months of this year have revealed unexpected signs of resilience. This has led economists to begin upgrading growth forecasts, while the World Economic Forum’s latest Chief Economists Outlook reported signs of ‘nascent optimism.’  

Growth stronger than expected 

Uncertainty undoubtedly continues to be a key feature of the world economy with pressure being exerted from a number of issues. First quarter data, though, has shown that the global economy performed better than most economists had previously feared, with growth recorded across all regions amid signs of the green shoots of recovery. 

Inflationary pressures set to fall  

Persistent inflationary pressures and tighter financial conditions, however, do remain key challenges for policymakers around the globe. Inflation has so far stayed stubbornly high and, while economists do expect it to continue falling over the rest of the year, this decline is predicted to be at a slower pace than previously thought. 

Resilient economic growth  

A key theme at the World Economic Forum’s recent Growth Summit was ‘enabling resilient economic growth’ with discussions focusing on inclusive and sustainable growth, and equitable globalisation. The organisation’s updated forecast showed a notable strengthening in growth expectations, although it also highlighted sharp variations by region. The most buoyant activity is predicted to be in Asia, with China’s reopening expected to drive a significant rebound, while growth prospects are thought to be noticeably weaker in Europe. 

Diversification is key 

An improving outlook should clearly create opportunities for shrewd investors. However, the relatively uncertain backdrop, along with divergent regional dynamics, inevitably means diversification will remain a vital component in any investor’s armoury. Spreading money in a globally diversified portfolio across a range of sectors and different size businesses should, as ever, prove an effective way to mitigate risk in the quest to build wealth. 

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. 

News in Review

“British pensioners should benefit from British business success” 

Chancellor Jeremy Hunt announced a package of reforms designed to boost pensions and increase investment in British businesses, in his first Mansion House speech which took place on Monday evening. He stated that the Mansion House Reforms aim to secure the best possible outcome for pension savers, whilst prioritising a strong, diversified gilt market and strengthening the UK’s position as a leading financial centre.  

The Chancellor revealed 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.  

Mr Hunt estimates that the plans could provide a £1,000 a year boost in retirement to the typical earner who starts saving at 18.  

Commenting on the reforms, 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.” 

At the same Mansion House event, Bank of England Governor Andrew Bailey said reducing inflation to 2% is “so important” as people “should trust that their hard-earned money maintains its value.” 

House prices fall at fastest rate in 12 years 

The latest Halifax House Price Index shows an annual fall in prices of 2.6%, which the lender says is equal to around £7,500 being wiped off the average UK house price, the biggest drop since 2011. House prices fell for the third month in a row, dipping by 0.1%. The average cost of a UK property is now £285,932, compared to a peak of £293,992 last August. 

At the same time, mortgage rates continue to rise. Moneyfacts released data on Tuesday showing the average two-year fixed rate mortgage had climbed to 6.66%. 

“Rock solid” relations 

Ahead of a key NATO meeting in Vilnius, Lithuania, US President Joe Biden described relations with the UK as “rock solid” in his talks with Prime Minister Rishi Sunak, adding that he “couldn’t be meeting a closer friend and a greater ally.”  

The President also held separate talks on Monday with King Charles at Windsor Castle in their first meeting since the King’s coronation in May. 

Record wage growth  

Figures released on Tuesday by the Office for National Statistics (ONS) indicate that UK wages have risen at a record annual pace, fuelling fears that inflation will remain higher for longer. Growth in total pay (including bonuses) was 6.9%, whilst regular pay (excluding bonuses) grew by 7.3% in the March to May period, when compared to the same period a year earlier.  

However, when adjusted for inflation, growth in total and regular pay fell on the year in March to May 2023, by 1.2% and 0.8% respectively.   

Retired over 50s poorer 

A study by the Institute for Fiscal Studies (IFS) of people aged over 50 who left work during the pandemic has found that 48% of those who retired in 2020-21 are now living in relative poverty, are less likely to receive a pension and have lower levels of wellbeing than other retirees. IFS defines relative poverty as a couple on an income of less than £15,000 a year.  

The research concluded that disruption from the pandemic and perceived health risks may have forced many to leave work earlier than they had originally planned. 

Parents may miss out on State Pension 

Due to errors in National Insurance (NI) records, some parents may have been underpaid their State Pension. It’s estimated that around £1bn is owed, to about 210,000 people, of whom 43,000 have died. That would equate to an average shortfall of about £5,000 each. 

Parents who took time out of employment to bring up children should have had their NI records credited with home responsibilities protection (HRP), but it has come to light that the credit is missing from some NI records.   

A government spokesperson commented, “Most people’s records will be unaffected, and we will shortly be launching a new online tool to help people check whether they need to claim. HM Revenue & Customs will also begin writing to those likely to be affected from the autumn.” 

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 (12 July 2023) 

Summer 2023 – what next for the housing and mortgage markets?

Activity in the housing and mortgage markets is hotting up – and cooling down. According to the latest Residential Market Survey from the Royal Institution of Chartered Surveyors, a run of thirteen successive negative monthly readings for new instructions ended in May, marking the strongest reading for new listings since March 20211. Yet house prices are still predicted to fall in the second half of the year. 

What next for house prices? 

House price growth dipped in May and notably the annual rate of growth fell to -1.0%, marking the first time since 2012 that house prices have fallen year-on-year2. It remains to be seen which way the market will veer in the second half of 2023. 

If, as many are predicting, a flurry of mortgaged homeowners are forced to sell up when their current fixed-term deals end, the market could see a boost to supply that might reinforce the downward price movement. Analysts suggest too that first-time buyers (FTBs) could be delaying their homebuying plans in the hope that mortgage rates or house prices are about to fall sharply. 

Bank Rate 

Meanwhile, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) increased Bank Rate in June, taking it to 5%. Borrowing costs are now at their highest level since 2008. Those with tracker or variable rates have seen immediate higher repayments. 

Return of the 100% LTV mortgage 

The mortgage market is kicking back into action too, with one especially noteworthy development, the launch of a new mortgage product that allows FTBs to take out a loan on the full value of their home. The 100% loan-to-value (LTV) mortgage is exclusively for current renters and depends on their being able to prove a track record of timely rent payments. 

Don’t second guess 

Whatever happens in the months ahead, we’re here to help you make the right decisions for your unique circumstances. 

1RICS, 2023 

2Halifax, 2023 

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

Making purposeful financial decisions

The upsurge in inflation over the last year or so has again vividly highlighted the devastating impact sharply rising price levels can wreak on people’s finances. Carefully reviewing your financial choices now, though, can ensure you continue making appropriate decisions that will help to stop inflation leaving a lasting impression on your financial future. 

A lack of understanding 

Official statistics show the headline rate of inflation peaked at a 41-year high of 11.1% last October but, although economists expect it to continue falling for the rest of this year, the rate has so far remained stubbornly high. Research1, however, suggests the impact inflation has on our finances is not widely understood, with over half of UK adults failing to grasp how rising prices eat into the buying power of their savings. 

Limiting the damage 

Inheritance is another area where high inflation can have a profound effect. When combined with the continuing nil-rate threshold freeze, soaring prices inevitably mean more estates are likely to be dragged into the Inheritance Tax net. Careful planning now, though, can limit any future liability and preserve people’s ability to pass on assets to their heirs. 

Pension pressures 

Retirement provision is also a concern, with growing evidence that cost-of-living pressures are leading some to cut back contributions as a way to make ends meet, without realising the lasting damage such decisions can make. For instance, analysis2 based on various assumptions (about such factors as salary, pension contribution rates and investment growth) shows that if someone opts out of pension contributions for five years in their 20s it could reduce their final retirement pot at age 66 by £114,000. 

Stay on plan 

At times like these, it is often worth revisiting what initially inspired you to set your financial goals. Reconnecting with those original motivations can encourage you to stick to your plans and thereby help maintain control over your financial destiny. 

Here for you 

As ever, we’re here to help; so please get in touch if you need to review your finances and, together, we’ll plan to mitigate inflation’s impact on your future financial wellbeing. 

1Aviva, 2022 

2Standard Life, 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. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning. 

Spotlight on pension changes

During the Spring Budget the Chancellor announced several changes to pensions including increasing the Annual Allowance and the Money Purchase Annual Allowance. The changes, the most significant since pensions freedoms in 2015, have largely been met with positivity, bringing greater flexibility and opportunity. 

Some higher-paid workers faced additional tax bills as a result of building sizeable pension pots or significant final salary benefits. The overhaul makes it easier for people to accumulate a larger pension pot and not be penalised by taxes, also enabling them to build larger capital sums needed to produce sufficient retirement income. Let’s take a look in closer detail at some of the main changes, many of which took effect from 6 April 2023: 

  • The Lifetime Allowance (LTA) charge was removed, with the LTA (currently £1,073,100) itself expected to be formally abolished (likely to be April 2024), allowing people to save more into their pension over their lifetime without facing tax charges for exceeding it 
  • The standard Annual Allowance (AA) increased from £40,000 to £60,000 (max 100% of earnings), allowing many individuals to pay more into their pension each tax year and receive tax relief on it. Individuals are still able to carry forward any unutilised allowance from the previous three tax years. Increasing the AA will particularly benefit workers approaching retirement who may have neglected pension saving in the past, who will be able to pay more into their pension each year and receive tax relief 
  • The ‘adjusted income’ threshold for Annual Allowance tapering increased from £240,000 to £260,000 and the minimum tapered Annual Allowance increased from £4,000 to £10,000 (meaning that individuals with annual adjusted income of £360,000 or more will have an Annual Allowance of £10,000). The tapered Annual Allowance is the reduced pension Annual Allowance that is applied to those who now have an ‘adjusted income’ over £260,000, for every £2 earned above the £260,000 threshold the normal Annual Allowance is reduced by £1 
  • The Money Purchase Annual Allowance (MPAA) increased from £4,000 per tax year to £10,000, to encourage those drawing a pension to continue working. This is the amount you can pay into your pension after you have accessed pension benefits, and still enjoy tax relief. The additional MPAA means anyone already using their pension but continuing to work, or looking to return to work, will be incentivised to do so as they can increase the size of their pension pot and receive tax relief. 

Good for you 

The changes only really impact the highest earners, those with generous company pensions and those wanting to aggressively fund their pensions later in life. The government is hoping the changes will incentivise those in certain high demand, high earning professions such as GPs and NHS consultants to postpone retirement. 

Professional pension advice is essential to ensure you make the most suitable decisions with your pension and to maximise your pension provision without encountering tax issues. 

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. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning. 

News in Review

“These measures should offer comfort to those who are anxious about high interest rates”

Last week, around 85% of lenders operating in the UK’s mortgage market signed a government Mortgage Charter agreeing to support borrowers, following a meeting with the Chancellor to discuss the impact of rising mortgage rates on homeowners. 

The Charter includes allowing borrowers to contact their lender for help, without impacting their credit file and enabling borrowers who are up to date with payments to switch to a new mortgage when their fixed term ends, without another affordability check. The ability to switch takes effect from 10 July and will be available six months before a borrower’s fixed term period expires.

Lenders will also help borrowers to plan for when their rate ends and offer support to those struggling financially. This may include extending their mortgage term to reduce payments, switching to interest-only, or temporarily deferring payments.

Chancellor Jeremy Hunt said the measures “should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty. As we have consistently shown through the pandemic, and the consequences of the war in Ukraine, we will always be on the side of households.”

Small Q1 growth for UK

The UK economy grew by 0.1% in the first quarter, according to data released by the Office for National Statistics (ONS) on Friday. The small GDP boost helped the UK steer clear of recession but left output 0.5% lower than it was in the final quarter of 2019.

Separately, figures released by the Bank of England (BoE) on Friday showed that households withdrew £4.6bn net from banks and building societies in May, the highest level of withdrawals since the BoE started collecting this monthly data in 1997. As inflation and cost-of-living pressures put the squeeze on household budgets, more people are dipping into savings to sustain living standards or to pay off mortgages or loans.

Central bankers not backing down 

Leaders of the world’s top central banks met last Wednesday in Sintra, Portugal, to discuss the prospect of further policy tightening to tame high inflation. At the end of the meeting, the bankers reaffirmed their belief that inflation can be lowered without triggering outright recessions.

Significant interventions came from US Federal Reserve Chairman Jerome Powell, who kept open the possibility of consecutive interest rate hikes. Likewise, European Central Bank President Christine Lagarde seemed to confirm the expectation of a ninth consecutive rise in eurozone rates in July.

BoE Governor Andrew Bailey, meanwhile, said he would do what is needed to bring down persistent price growth in the UK. Markets currently predict the BoE will increase Bank Rate from 5% to 6.25% by the end of this year, to which Mr Bailey commented, “They’ve got a number of further increases priced in for us. My response to that would be, well, we’ll see.”

Bank of Japan Governor Kazuo Ueda remains an outlier, though even he seemed to open the door to one day abandoning the country’s ultra-easy policy.

UK-EU collaboration agreed

After years of post-Brexit disagreements, the UK has signed a pact with the EU to increase co-operation on financial services. The deal will include establishing a new forum where representatives can meet twice a year to discuss financial regulation and standards. A published memorandum stated, ‘Both sides will share information, work together towards meeting joint challenges and co-ordinate positions.’

New NHS plan revealed

On Friday, the government revealed its latest workforce plan for the National Health Service (NHS), with a promise to train more doctors and nurses, and create thousands of new roles to work alongside them. Proposals include doubling the number of university places for medical students, introducing a new apprenticeship scheme for doctors and shortening medical degrees.

The launch of the new plan follows revelations last Thursday that staff sickness in the NHS in England reached record levels in 2022, with the NHS losing the equivalent of nearly 75,000 staff to illness.

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 (5 July 2023)

Where are house prices most resilient?

In a housing downturn, not all cities and towns are equal. New research1 has highlighted which areas of the UK are the most resilient in the face of falling prices. 

On the slide 

In January, overall property prices fell for a fifth consecutive month, as the market continued to cool. Sliding prices have been brought about by soaring inflation and mortgage costs, as well as cost-of-living pressures placed on households. 

The safest bets 

Which areas are standing firm? The most ‘recession-proof’ area, according to the study, is the London Borough of Kensington and Chelsea, closely followed by Westminster and Camden. Swansea in Wales and Oxford in England both also deserve a mention. 

In total, Scotland has so far suffered a less abrupt slowdown in house prices than elsewhere in the UK, according to Nationwide. 

Here to help 

The ranking of the 96 most-populated local authority areas was based on factors such as mortgage debt, the proportion of first-time buyers and price changes in the past year. 

In an uneven market, we are here to help guide you through everything you need to know. 

1Garrington Property Finders, 2023 

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

Green home improvements on hold

Homeowners are delaying improvements to the sustainability of their homes, according to the latest ‘Greener Homes Attitude Tracker’ from Natwest1, as cost-of-living difficulties remain. 

Cost-of-living delay 

More than a quarter of homeowners indicated they are less inclined to implement energy saving measures in the upcoming 12 months amid enduring financial concerns. In the three months to December 2022, this figure fell for the first time since the Green Home Improvements Index started in Q2 2021. 

Furthermore, 71% of homeowners who do not plan to make modifications in the next decade cited the expense of the work as the single biggest obstacle. 

Simplicity the key 

Although homeowners continue to place importance on energy saving measures, barriers remain. Smart energy meters are the most likely sustainability measure to be installed over the next year, highlighting a preference for simplicity. 

1Natwest, 2023