News in review

‘A resilient financial sector’

Interest rates in the UK will need to stay higher for longer than previously forecast to tackle inflation, the International Monetary Fund (IMF) warned last week, despite improvements in the country’s economic outlook since the start of 2023.

With cheaper energy, better relations with the European Union and calmer financial markets, the IMF expects UK gross domestic product (GDP) to grow by 0.4% this year and 1.0% in 2024. These figures are in line with previous forecasts released by the IMF in May and significantly better than April’s forecast that the economy would shrink by 0.3% this year.  The IMF report stated that the upward revision was due to ‘stronger-than-expected consumption and investment from the confidence effects of falling energy prices, lower post-Brexit uncertainty (following the Windsor Framework agreement), and a resilient financial sector as the March global banking stress dissipates.’

Globally, the IMF improved its outlook on growth to 3%. Increased post-pandemic travel, as well as a strong jobs market and services sector, helped cause the 0.2% improvement from April’s forecast, though the IMF warned that rampant consumer prices and higher interest rates remained risks in developed nations.

Sunak backs new oil and gas

On Monday, Prime Minister Rishi Sunak defended his government’s decision to grant 100 new North Sea oil and gas licences, claiming that these were “entirely consistent” with the UK’s net zero commitments.

On a trip to a carbon capture project in Aberdeenshire, Mr Sunak said, “Even when we reach net zero in 2050, a quarter of our energy needs will still come from oil and gas, and domestic gas production has about a quarter or a third of the carbon footprint of imported gas.” Mr Sunak also lauded the highly skilled jobs that carbon capture projects could provide.

The announcement sparked concern, however, amongst climate campaigners. Oxfam Climate Change Policy Adviser Lyndsay Walsh commented, “Extracting more fossil fuels from the North Sea will send a wrecking ball through the UK’s climate commitments at a time when we should be investing in a just transition to a low carbon economy and our own abundant renewables.”

Car production up in June

UK car production rose 11.7% in the first half of the year, according to figures published last week by the Society of Motor Manufacturers and Traders (SMMT). This represents the best first half year since 2021.

With a 16.2% rise in June, this was the fifth consecutive month of growth for production, thanks in part to an improving global supply chain. Electric vehicle (EV) production roared into life, with a 71.6% increase to 170,231 units – a H1 record.

Mike Hawes, SMMT Chief Executive, said, “UK car manufacturing is growing again, with production – especially of electrified models – increasing and major investment announcements making headlines. This is testament to the resilience of the sector and its undoubted strengths – a skilled and productive workforce, world-class R&D, and efficient, productive plants.”

House prices at lowest in 14 years

UK house prices fell annually by 3.8% in July, according to Nationwide’s House Price Index, which was released on Tuesday, the biggest decline since July 2009.

Amid higher interest rates and cost-of-living pressures, the average price of a home in the UK is now £260,828, 4.5% below a peak in August last year. Affordability remains a key challenge for buyers, according to Nationwide, after mortgage costs reached their highest level for 15 years.

Robert Gardner, Chief Economist at Nationwide, said, “A prospective buyer, earning the average wage and looking to buy the typical first-time buyer property with a 20% deposit, would see monthly mortgage payments account for 43% of their take home pay – assuming a 6% mortgage rate. This is up from 32% a year ago and well above the long-run average of 29%.”

Change to alcohol duties

Changes to alcohol duties, originally scheduled for February, have now come into effect after having been postponed by Chancellor Jeremy Hunt during the cost-of-living crisis. There will be a 10.1% rise in alcohol duties as well as an overhaul of the system. Drinks with alcohol by volume (ABV) below 3.5% will be taxed at a lower rate, but tax on drinks with ABV over 8.5% will stay the same, whether it is wine, spirit or beer.

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 (02 August 2023)

Home Finance – In the news

Apartment sales drive recovery  

Agreed residential sales have returned to pre-pandemic levels for the first time since September 20221. The number of sales in March 2023 was only 1% behind March 2019, with the recovery largely driven by sales of apartments, which are now 10% above 2019 levels. In total, agreed sales remain 18% below the exceptionally busy market of this time last year.  

Mortgage repayments rise  

Buyers are paying up to 60% more on their monthly mortgage repayments compared to December 2021, according to new research2. The average two-year fixed rate on a 95% LTV mortgage, the analysis showed, has monthly repayments of £1,793, which is £615 per month higher than 15 months ago.  

Homeowners underestimate ‘rebuilding’ costs  

Roughly nine in 10 homes have underestimated the amount of cover they need to account for ‘rebuilding’ costs on their property insurance, estimates show3. This is largely because costs have shot up by 18% in a year, resulting in the average three-bed semi-detached home now costing £53,000 more to rebuild than it would have in February 2022.  

1Rightmove, 2023 

2House Buyer Bureau, 2023 

3Building Cost Information Service, 2023  

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

Residential Property Review – July 2023 

RICS survey shows demand falling   

Activity in the residential sales market deteriorated in June, according to the latest UK Residential Survey by the Royal Institution of Chartered Surveyors (RICS), with negative net balance readings returned across many indicators. 

New buyer enquiries fell to a net balance of -45%, compared to -20% recorded in May, the lowest such reading since October 2022. Similarly, newly agreed sales dropped from -8% in May to a net balance of -34% in June, making it the most downbeat figure since December 2022. 

On the supply side, new sales instructions held steady in June, with respondents recording a net balance of -1%, compared to +14% in May. Despite this, the average number of homes available for purchase remains very low on a longer-term historical comparison, the report notes. 

Simon Rubinsohn, RICS Chief Economist, commented, “The latest increase in interest rates and the impact this has already had on mortgage rates is clearly visible in the key RICS metrics regarding buyer enquiries [and] sales.” 

Rising mortgage costs make defaults more likely 

Banks and building societies expect the level of mortgage defaults to increase over the next quarter, according to a report from the Bank of England (BoE), but lenders are strong enough to withstand the rise in customer defaults. 

Since successive rate rises have taken Bank Rate from 0.1% in December 2021 to 5% last month, households have been under increasing pressure to keep pace with their mortgage costs. An estimated 4.5 million homes have already seen repayments increase. 

As fixed-rate mortgage deals expire and people renew their loans, many more will be affected. Indeed, monthly payments are expected to increase by at least £500 a month for nearly one million households by the end of 2026, the BoE has warned, potentially leading to a significant rise in customers defaulting on repayments. 

Rental market surge in demand 

Tenant demand is still soaring, newly released data shows, while the number of landlords advertising new properties has fallen sharply. 

Private rental prices paid by tenants in the UK rose by 5.1% annually in June, according to figures released by the Office for National Statistics. This is slightly higher than the 5.0% recorded in the year to May 2023. 

Rental prices increased by 5.1% annually in England, 5.8% in Wales and 5.5% in Scotland. In England, the West Midlands led the way (+5.4%), while the North East recorded the lowest rise (4.4%). London’s annual percentage change of 5.3% was the highest annual rate since September 2012. 

Separately, respondents to the latest RICS survey returned a net balance for landlord instructions of -36%, the most negative reading for this metric since May 2020. 

All details are correct at the time of writing (20 July 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. 

Commercial Property Review – July 2023

Hotel investment  

The latest Knight Frank analysis of the UK hotel sector shows that transaction volumes were around £860m in H1 2023, 60% below investment volumes for the same period one year earlier. 

There is a challenging environment in the UK, reflective of the macro-economic environment, with sluggish GDP growth. Some deals have completed, as experienced hotel investors both domestic and from overseas, as well as HNWIs and family-offices, account for 70% of transaction volumes. Market strength remains for quality hotels in prime locations, as well as for hotels with repositioning and value-add potential. During H1, overseas investors accounted for 41% of the transaction volume, originating from Asia, Europe and the Middle East. 

Looking forward, the report concludes, ‘The next six months should see more robust levels of investment activity, with several hotel deals known to be under offer. The level of activity though will depend on how much further tightening of monetary policy is required in the short-term. Interest rates will remain high over the medium term, as such, with no quick solutions to servicing the debt, lenders will be exerting greater pressure on their borrowers to calibrate debt covenants.’ 

Warehouse demand takes a tumble  

New research from commercial property agent the CoStar Group has highlighted that for the first time, the number of firms choosing to withdraw from warehouse space has exceeded those occupying them.  

Demand for UK warehouse space has fallen to its lowest point in 11 years, Director of Market Analytics at CoStar Group, Grant Lonsdale has deduced, “With cost-of-living pressures weighing on consumers, many online and bricks-and-mortar retailers, as well as the third-party logistics providers that service them, are re-evaluating their storage and distribution space requirements in a bid to optimise overheads.”  

At the same time, the availability of larger warehouses has been increasing at pace and is currently at a seven-year high. Amongst those reducing their space are ASOS and Boohoo Group, with the former announcing the closure of three smaller warehouses earlier this year.  

All details are correct at the time of writing (20 July 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

“Inflation is falling and stands at its lowest level since last March”

Last week, official data released by the Office for National Statistics (ONS) revealed that inflation in the UK fell further than expected in June to settle at 7.9%, down from 8.7% a month earlier and its lowest point since March 2022.

The ONS acknowledged lower petrol prices were a key reason for the inflation slowdown, which fell more sharply than the 8.2% forecast by City analysts. Despite the positive news, UK inflation remains the highest in the G7 – and a long way above the Bank of England’s (BoE) 2% target.

In response, financial markets shifted their expectations on the extent of the BoE’s upcoming rate rises, predicting that Bank Rate will no longer soar above 6% early next year, as had been previously forecasted. After the announcement, shares on the London stock market staged a rally and the pound fell by more than a cent against the dollar.

One group that might have breathed a small sigh of relief is mortgage holders. Following the announcement of the better-than-expected inflation figures, mortgage rates fell for the first time in two months. The average two-year fixed rate mortgage eased to 6.79% last Thursday, according to Moneyfacts, while the average five-year deal slipped to 6.31%.

Commenting on the inflation figures, Chancellor Jeremy Hunt said, “Inflation is falling and stands at its lowest level since last March; but we aren’t complacent and know that high prices are still a huge worry for families and businesses. The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.”

Savers missing out on better rates

With interest rates having spiralled to their highest levels since 2008, many savers are seeing higher returns on their balances. However, this isn’t the case for everyone: a third of savings held in easy-access accounts are still earning 1% or less, according to figures compiled by CACI.

The squandered interest payments are substantial, the researchers claim, with an estimated £205bn currently held among the 34 leading providers studied. The average easy-access rate now pays 2.61%, according to Moneyfacts, while the best deal on the market currently pays 4.51%.

House price growth slows

Annual house price growth slowed for a fifth consecutive month in May, according to ONS data released last week. House prices edged up by 1.9% annually in May 2023 to reach an average of £285,861, a smaller rise than the 3.2% recorded in the 12 months to April 2023.

Regionally, annual house price inflation was highest in the North East where prices increased by 4.0% in the 12 months to May 2023. In contrast, prices barely changed in the East of England, the region with the lowest annual growth.

In the rental market, surging figures continued unabated, with ONS data showing that private rental payments paid by tenants rose by 5.1% in the year to June. This represented the largest annual percentage change since the data series began in January 2016.

Consumer confidence moderates

Rising borrowing costs and high prices caused UK consumer confidence to fall in July, according to data released by research group GfK on Friday.

The Consumer Confidence Index fell six points to minus 30 compared with the previous month, the largest drop in sentiment since April 2022. Until this month, confidence had managed to stay resilient throughout 2023 despite double-digit inflation and rising mortgage and rent costs.

Client Strategy Director at GfK, Joe Staton commented on the findings, “For the first six months of 2023, UK consumer confidence improved despite the headwinds of the cost-of-living crisis, with double-digit inflation outpacing income growth and rising interest rates impacting both homeowners and renters alike. Suddenly, this resilience has collapsed, resulting in a six-point fall this month in the headline score. There are clear concerns for the coming year for our personal finances and for the wider UK economy.”

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 (26 July 2023)

Money – In the News

National Insurance (NI) gap 

If you want to boost your State Pension and plug a gap in your NI record, the government has just extended the deadline for doing so from 31 July 2023 to 5 April 2025. The government has been allowing eligible people to retrospectively build up their April 2006 to April 2016 NI record through voluntary contributions, as part of transitional arrangements introduced alongside the new State Pension. You can check your NI record here www.gov.uk/check-national-insurance-record. 

Locked Child Trust Funds 

Around 80,000 young people who lack the capacity to make financial decisions have been unable to access money in their Child Trust Fund1. Instead of being able to withdraw the money when they turned 18, families are having to pay to go through the Court of Protection, a long-winded and costly process. Ministry of Justice figures show only 15 accounts were accessed through this process in 2021. 

Using property wealth to support grandchildren 

Research2 has found that 79% of grandparents are providing financial support for their grandchildren, with one in 12 (8%) using their property wealth to do this. Grandparents aged 50 to 64 are twice as likely to use property wealth to gift to grandchildren compared with 65 to 74-year-olds, indicating that the next generation of grandparents are likely to use equity in their property for financial planning. 

1Renaissance Legal, 2023 

2L&G, 2023 

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. 

HNWIs cutting pension contributions

Research has highlighted that in an effort to alleviate daily financial pressures, including rising mortgage rates, one third of high-net-worth individuals (HNWIs) have reduced their pension contributions or intend to do so in the next six months1. Those with assets of £250,000 plus are more likely to have reduced their pension contributions in the last six months (14%), versus 9% across the UK population as a whole. 

Those HNWIs who have already taken steps to reduce their pension payments have done so by an average of £1,246 a month, nearly £15,000 over the course of a year. Over eighty percent (84%) of HNWIs are already experiencing or expecting an increase in their mortgage rates to put a strain on their cashflow, prompting many to reduce their pension contributions. 

Interestingly, the research has also shown that the majority of HNWIs are underestimating the requirements for a comfortable retirement, believing on average that a pension pot around £580,000 will do the job, but in reality a pot of nearly £700,000 plus the full State Pension will suffice, according to the research. 

1Saltus, 2023 

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. 

Housing stock soars

The number of houses for sale has soared, new figures show1, further strengthening the position of buyers. 

Supply surge? 

Ever since the pandemic days of frenetic buying, demand outstripping supply has been a familiar picture in the UK housing market. As interest rates have risen sharply in the past year, moreover, some potential sellers have put their moving plans on ice. 

It was surprising, therefore, when estate agents reported having an average of 34 homes for sale per branch in April. This is a significant rise from around a year ago when there were typically 20 properties on sale per branch. 

Get moving 

Figures for sales agreed are now almost back in line with pre-pandemic averages, estate agents noted. Although challenges remain, this is a strong sign that activity seems to be recovering. 

With more choices available, if you’ve been thinking about moving, this could be a great time to find your dream property! 

1Propertymark, 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

“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.