News in Review

“There is an encouraging downward path of inflation in our central projection”

Last week, the Bank of England’s (BoE) Monetary Policy Committee (MPC) voted by a majority of seven to two, to increase Bank Rate by 0.5 percentage points to 4%, its highest level for 14 years. The two committee members who opposed the half-point hike, favoured maintaining Bank Rate at 3.5%. 

The BoE has been increasing interest rates in a bid to tackle the soaring cost of living. This is the tenth consecutive rise but analysts believe rates are nearing a peak of 4.5%, which is significantly lower than the 5.25% peak that had been forecast when the MPC met in the autumn following the mini budget.

Although inflation remains close to its highest level for 40 years, BoE Governor Andrew Bailey said inflation now appears to be falling, “There is an encouraging downward path of inflation in our central projection.” However, he did caution that there are still “big risks out there” which could continue to have an impact on the economy.

Although challenges remain and the economy appears to be fragile, forecasts for the year ahead were revised up, predicting a shorter and shallower recession than previously anticipated, lasting just over a year rather than almost two, as energy bills fall and price rises start to moderate.

BoE Chief Economist Huw Pill spoke on Friday about the need for the Bank to strike a balance with their policy direction, saying that the full impact of aggressive interest rate actions have not yet been felt in the economy, so it’s “important we guard against the possibility of doing too much,” adding that the MPC would maintain a “zen-like balance in our objective” to bring inflation down in the medium term.

The next MPC summary and minutes will be released on 23 March, following the meeting conclusion.

And elsewhere…

Last week in the US, the Federal Reserve increased its base interest rate by 0.25 percentage points, its smallest increase since March last year, when the bank instigated its most radical interest rate raising cycle in over 30 years. The central bank elevated the Fed Funds Rate in line with market expectations, to a range of 4.5 to 4.75%, the highest since 2007. In a statement, the Fed outlined ‘ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.’  Indicating that further rate rises may be required to control inflation, Fed Chairman Jerome Powell commented that “the job is not fully done.”  And on the continent, the European Central Bank (ECB) recently rose its base rate by 0.5 percentage points and suggested that it expects rates to continue their ascent.

UK manufacturing sector

Last week the latest S&P Global/CIPS UK Manufacturing PMI data highlighted a rise to 47.0 in January. Although still a contraction (sub-50.0 signals a deterioration), it is a slower paced contraction than the one registered in December (45.3), a 31-month low. Despite output, new orders and employment all contracting further, the outlook is positive, with optimism rising to its highest level since April 2022. Rob Dobson, Director at S&P Global Market Intelligence, commented on the latest survey results, “There were some shoots of positivity developing… Rates of contraction are generally lower than before the turn of the year, a possible sign that we may be past the worst of the downturn in industry. Cost inflation also eased further, while supply chain delays were the least pronounced for three years. Manufacturers’ confidence is also reviving from recent lows, hitting a nine-month high, though the mood continued to be darkened by concerns about inflation and the possibility of recession.”

Markets

On Friday (3 February) the FTSE 100 hit an all-time high, overcoming any economic drag to briefly touch a record high of 7,906.58, topping its previous peak in May 2018, before closing at 7,901.80. BP shares boosted London stocks on Tuesday following the release of its latest set of results, even as investors eyed a speech by Jerome Powell, expecting to get clues regarding the bank’s tightening path.

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 (8 February 2023)

Economic Review – January 2023

UK growth beats expectations

The latest gross domestic product (GDP) statistics show the economy unexpectedly grew in November easing fears that the UK has already slipped into recession.

Data released by the Office for National Statistics (ONS) revealed that the UK economy expanded by 0.1% in November. This figure was higher than any forecast submitted to a Reuters poll of economists with the consensus prediction suggesting the economy would shrink by 0.2% across the month.

ONS said much of the growth was linked to the football World Cup, with pubs and restaurants benefiting as people went out to watch the games. The figures were also boosted by an increase in demand for services in the tech sector.

November’s better than anticipated data makes it more likely that the UK managed to avoid entering recession during the final half of last year. Economists are now typically forecasting that GDP will have flatlined during the fourth quarter of 2022 and thereby dodged the technical definition of a recession.

However, the consensus view does still suggest the UK is likely to record two negative quarters of growth during the first half of this year as consumers continue to struggle with rising food and energy bills, and ongoing industrial action acts as a drag on growth. A recent Reuters poll puts a 75% chance on the UK slipping into recession this year, although any downturn is expected to be relatively shallow.

This view was largely supported by data from the recently released S&P Global Purchasing Managers’ Index. While the closely monitored survey recorded a sixth consecutive monthly decline in UK business activity during January, the scale of the downturn signalled by the data remains relatively modest by historic standards. There was also some positive news from forward-looking indicators, with a jump in business optimism for the year ahead.

Inflation expected to fall rapidly

Bank of England (BoE) Governor Andrew Bailey has suggested that a recent easing in the headline rate of inflation could be a sign that “a corner has been turned.”

Data released last month by ONS showed that the Consumer Prices Index (CPI) annual rate – which compares prices in the current month with the same period a year earlier – fell to 10.5% in December. This was the second successive monthly decline since inflation hit a 41-year high of 11.1% in October.

ONS said that easing price pressures for motor fuels and clothing had pushed down December’s headline rate. Dips in these sectors, however, were partially offset by a further sharp rise in the cost of food and non-alcoholic drinks, while restaurant and hotel prices also increased significantly.

Despite the latest fall, the annual rate of CPI inflation clearly remains well above the BoE’s 2% target level. Indeed, when releasing the data, ONS Chief Economist Grant Fitzner pointed out that, “Although we’ve seen a second consecutive easing, it is a fairly modest fall and inflation is still at a very high level with overall prices rising strongly.”

Economists and policymakers, however, are increasingly predicting that inflation has now peaked. Last month, for example, the BoE Governor said inflation looks set to fall “quite rapidly” from the spring as energy prices decrease and that the Bank was more optimistic inflation could be on an “easier path.”

Other data published last month also points to easing inflationary pressures. The latest producer prices data from ONS, for instance, unexpectedly revealed a drop in manufacturers’ input and output prices in December, with both recording the largest monthly fall since April 2020. In addition, a CBI survey found that British factories reported the slowest growth in costs for almost two years during the three months to January.

Markets (Data compiled by TOMD)

Major global indices closed January in positive territory. As the month drew to a close, investors were looking ahead to the Federal Reserve and Bank of England monetary policy decisions in early February.

In the UK, the FTSE 100 ended January on 7,771.70, a gain of 4.29% in the month. The domestically focused FTSE 250, more closely correlated to the UK economy, closed the month up 5.31% on 19,853.45, while the FTSE AIM closed January on 867.82, a monthly gain of 4.39%. UK markets were impacted at month end after the International Monetary Fund’s forecast detailed lagging growth versus G7 counterparts.

Across the pond, the Dow Jones index closed January up 2.83% on 34,086.04, while the NASDAQ closed the month up 10.68% on 11,584.55, amid a flurry of corporate earnings and the imminent Fed policy meeting. On the continent, the Euro Stoxx 50 closed the month on 4,163.45, registering a gain of 9.75%. In Japan, the Nikkei 225 closed January up 4.72%, on 27,327.11.                                        

On the foreign exchanges, the euro closed the month at €1.13 against sterling. The US dollar closed at $1.23 against sterling and at $1.08 against the euro.

Gold closed the month trading at around $1,923 a troy ounce, a monthly gain of around 6.0%. The gold price has risen as demand for the precious metal holds firm in the face of economic uncertainty. Brent crude closed the month trading at around $85 a barrel, a small monthly gain of 0.77%. The next OPEC+ (Organization of the Petroleum Exporting Countries and allies) producer meeting in early February will provide clarity on the trajectory of global supplies.

Pay growth picks up pace

While the latest earnings statistics revealed that wages are now rising at their fastest rate in over 20 years, the data also showed that pay growth is still failing to keep up with the rise in prices.

According to figures released last month by ONS, average weekly earnings excluding bonuses rose at an annual rate of 6.4% in the three months to November. This figure represents the strongest growth in regular pay since records began in 2001, excluding the coronavirus period when the data was distorted by workers returning from furlough.

However, despite this historically high level of nominal earnings growth, the real value of people’s wages continues to fall, with regular pay levels actually down by 2.6% when adjusted for inflation. Although this decline is slightly smaller than the 3.0% fall in real regular pay reported in Q2 2022, it still represents one of the largest real declines in wages ever recorded.

The latest data also highlighted the wide disparity in pay growth for private sector and public sector workers. In the three months to November, private-sector regular pay levels rose by an average annual rate of 7.2% compared with 3.3% across the public sector.

Retail sales suffer December decline

Official data shows that sales volumes fell in December, capping a difficult year for the retail sector, while more recent survey evidence suggests conditions remain challenging.

The latest ONS retail sales statistics revealed that total sales volumes in December unexpectedly fell by 1.0% from the previous month and by a record 5.8% compared with December 2021. Across the whole year, sales volumes declined by 3.0% compared with 2021, the worst full-year performance since records began in 1997.

While rising prices did see many retailers report relatively strong festive sales figures in monetary value terms, the official data shows that high inflation has resulted in shoppers effectively getting less for their money. ONS also noted that feedback from retailers suggested consumers were “cutting back on spending because of increased prices and affordability concerns.”

Survey data suggests sales volumes continued to slide in the new year, with the CBI’s latest Distributive Trades Survey showing a net balance of retailers reporting year-on-year sales growth falling to -23% in January. CBI Principal Economist Martin Sartorius said, “Retailers began the new year with a return to falling sales volumes, as the sector continues to face the twin headwinds of rising costs and squeezed household incomes.” 

All details are correct at the time of writing (01 Feb 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

“The UK is poised to play a leading role in Europe and across the world in the growth sectors which will define this century”

Last Friday, Chancellor Jeremy Hunt outlined his long-term vision for how to boost UK economic growth. This plan is based on four pillars which Mr Hunt said are “essential for any modern, innovation-led economy” – enterprise, education, employment and everywhere.

Alongside the need to improve education and employment opportunities countrywide, the Chancellor outlined his intentions to build an enterprising digital economy, comprising dynamic and productive companies, including facilitating easier access to capital for scale ups. ‘Everywhere’ refers to levelling up and the desire for all parts of the UK to benefit and prosper.

Although the public sector has rebounded more slowly from the pandemic than hoped, he spoke about the misconception of “declinism” in the UK, saying it “has always been wrong in the past – and it is wrong today.” Adding, “The UK is poised to play a leading role in Europe and across the world in the growth sectors which will define this century.”

The Chancellor pledged to use what he referred to as “Brexit freedoms” to boost growth in the UK but added that in his opinion, rather than cutting taxes, the “best tax cut right now is a cut in inflation.”

Other key points from his speech included:

The establishment of ‘mini Canary Wharfs’ – The government intends to invest in areas across the country to help reverse the economic migration to South East England.

A focus on business reform–- The Edinburgh Reforms package is expected to unlock over £100bn of additional investment into the UK’s most productive growth industries.

Encouraging people to return to work – With a fifth of working age adults economically inactive and around five million people not wanting to work, Mr Hunt appealed, “It’s time for a fundamental programme of reforms to support people with long-term conditions or mental illness to overcome the barriers and prejudices that prevent them from working. We will never harness the full potential of our country unless we unlock it for each and every one of our citizens.”

Business reaction and confidence

The speech comes hot on the heels of widespread discontent expressed by business groups, not least the UK car industry. Data released last week from the Society of Motor Manufacturers and Traders (SMMT) showed the number of cars made in the UK has fallen to its lowest level for 66 years. In addition, the most recent Small Business Index from the Federation of Small Businesses (FSB) has highlighted that in Q4 2022 confidence among UK-based small business owners plunged to the lowest level seen since the second pandemic lockdown, at -46 points, down from -36 points in Q3. With high costs, surging utility bills and supply chain issues weighing on many small businesses, the research shows that firms operating in retail and hospitality were badly impacted in Q4.

Referring to the Chancellor’s speech, Craig Beaumont of the FSB said it had “all the right elements“, adding that in the years ahead the “proof will be in the pudding.” Chief Economist at the Institute of Directors (IoD) Kitty Ussher suggested Mr Hunt add a fifth ‘e’ – “empty”, after announcing what she felt were not concrete plans.

First-time buyer numbers

Data from Halifax has outlined that althoughthe number of first-time buyers (FTBs) last year fell by 11%, to 362,461 year-on-year, numbers remained higher than pre-pandemic levels. In addition, the data shows that more people found a footing on the property ladder last year than in any year prior to 2006 and 2021’s record spike, when the ‘race for space, pent up demand from the pandemic and government measures to ease Stamp Duty costs, led to a record number of first-time buyers getting the keys to their first home.’ With average FTB house prices rising by 13% in 2022 to £302,010 and average deposits increasing to 21% of the purchase price, the data alsorevealed that 63% of FTB mortgage completions are now in joint names.

Latest forecast for the UK  

The International Monetary Fund (IMF) has downgraded its forecast for the UK economy, now predicting a contraction of 0.6% this year, contrary to their previous forecast of slight growth. This will make the UK the only country to shrink across all the advanced and emerging economies. However, the IMF also said that it thinks the UK is now ‘on the right track’.

Here to help

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

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

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

Commercial Property Market Review – January 2023

Commercial property deals at ten-year low

Commercial property deals have collapsed to their lowest level in more than a decade, with just £7bn transacted in the final three months of 2022, according to CoStar.

Investors have faced a series of shocks in the past year, including higher interest rates, the September ‘mini-budget’ and the prospect of a lengthy recession. Higher rates have caused borrowing costs to spiral, which has prompted some investors to stay on the sidelines while the market adjusts to higher rates.

Across the full year, spending on commercial property fell in every quarter. After £21bn was transacted in Q1, investment fell to £17bn in the second quarter and £11bn in the third. Of the £56bn transacted across the year, roughly a third was allocated towards offices.

Looking ahead, the researchers acknowledged that dealmaking is likely to remain slow in H1 2023. They also note, however, that activity could pick up in H2 if the economic outlook improves – possibly resulting in a full reversal of 2022.

New Year recovery expected for hotel deals

The outlook for the hotel sector is positive, newly released reports by Savills and Knight Frank suggest, with deals expected to keep recovering into 2023.

Volumes dropped by 27.5% year-on-year in 2022, though there was a clear uptick in activity in the final quarter. As the new year market starts to take shape, investors looking for opportunities could move quickly when more stock becomes available, analysts predict.

Indeed, hotels are likely to remain an attractive investment, the reports suggest, despite tough economic conditions. Backed by resilient user demand and with the worst of the pandemic already navigated, hotels could serve as a hedge against inflation.

Tim Stoyle of Savills, commented, “Approximately £500m worth of hotel asset [deals], that we are aware of, are expected to complete in January, which would be a positive start to the year and marks the intentions of investors as they look to deploy capital into attractive opportunities.”

Take-up of industrial and logistics takes off in 2022

Take-up of industrial and logistics units over 100,000 sq. ft soared to 45.73m sq. ft in 2022, according to Savills’s latest Big Shed Briefing, leaving the year 49% above the long-term annual average.

2022 is now the sector’s third best year on record, thanks largely to third-party logistics occupiers, who accounted for almost a third of all new leases, the highest proportion ever recorded. 86% of these units are considered grade A (significantly above the long-term average of 60%).

Supply currently stands at 25.6m sq. ft across 131 units and the nationwide vacancy rate is 3.96%, up slightly since the end of 2021. Moreover, an additional 20.77m sq. ft of speculative development is due for completion in 2023 and 2024, 12% of which is already under offer.

Scottish commercial property on the up

Scottish commercial property had a strong year in a difficult economic environment, with annual investment volumes continuing their upward trajectory in 2022, according to Knight Frank.

In total, £1.66bn worth of deals concluded last year, a slight rise on the £1.64bn recorded during 2021. The annual total is the biggest since 2019’s £2.02bn.

As well as setting a post-pandemic record, 2022 also contained the single largest office transaction in Scotland – in April, Spanish investment firm Pontegadea paid more than £200m for 177 Bothwell Street in Glasgow.

Indeed, Glasgow saw the highest investment volumes of Scotland’s three largest cities (£468.54m), narrowly ahead of Edinburgh (£463.57m). Aberdeen’s £143.06m worth of deals was its highest figure since 2019.

Other trends saw overseas investors account for 52% of investment volumes and offices led the way (£494.23m), ahead of industrials (£308.75m) and retail (£303.20m).

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.

Residential Property Review – January 2023

Housing market slowing but far from stopped

Supply and demand both fell in November 2022, according to the latest UK Residential Survey from the Royal Institute of Chartered Surveyors (RICS), though sales completions remained high for the month.

Transactions rose by 2.9% in November, although this is likely to include many mortgage agreements from before the September ‘mini-budget’, the RICS survey notes. Analysts expect transactions to remain at reduced levels throughout 2023.

Separate figures from the Bank of England for November 2022 show mortgage approvals 28.6% below the 2018-19 monthly average. As 2022 drew to a close, activity was falling on both sides with new instructions (-7.5%) and sales agreed (-11.5%) both below their 2018–19 average, according to TwentyCi.

Record-breaking Boxing Day sales set tone for 2023

New sellers coming to market on Boxing Day climbed by 46% year-on-year, according to Rightmove figures, with a group of motivated sellers hoping to start the new year by finding a buyer.

Valuation requests, the first step for many future sellers planning to put their house on the market, also soared after the Christmas festivities. The week commencing 26 December was the busiest week for valuation requests since early September and 29% higher than at the same time last year.

Post-Christmas clicking jumped too, a positive sign that demand for these newly-listed properties could be strong following the Christmas lull. In total, the number of views of homes for sale on Rightmove jumped by 20% between the week commencing 19 December and week commencing 26 December.

Tim Bannister from Rightmove said, “Boxing Day is traditionally the start of activity ramping up into January and the spring selling season after Christmas, as people return to their search or consider a new year move. We’ve seen some promising activity and familiar patterns over the festive period this year, which are good signs for the year ahead. After such frenetic market conditions over the last few years, this year’s calmer market will better suit measured movers who prefer to take their time to find the right property.”

Landlords still optimistic despite tougher market

More than half of UK landlords feel optimistic about the future, despite 49% admitting that market conditions have become harder in the past year, a new survey from Aldermore reveals.

In total, 54% remain optimistic for the year ahead, while 66% think that being a landlord is still a good way to make money.

Inflationary pressures, cost-of-living difficulties and housing market volatility are creating a challenging environment for landlords, analysts say.

The survey revealed that 48% have been unable to expand their property portfolio and 42% have considered downsizing if market conditions continue as they are. Significant rent rises could be on the cards as well, with 62% of landlords now saying they’ll have no choice but to put up rents by at least 10% if market conditions don’t change in the next 12 months.

Energy Performance Certificates (EPC) remain a key concern in the current market, with 58% saying that the sustainability and energy efficiency of their property portfolio is a priority.

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.

Reminder – tax year end

As the end of the tax year approaches, a prime consideration should be how external factors such as reduced or frozen allowances, together with high inflation, could impact your finances and what action you need to take before 5 April 2023. 

If you are affected by the impending changes to Dividend Tax or Capital Gains Tax (CGT) announced in the Autumn Statement, have you considered investing up to £20,000 this tax year in a stocks and shares Individual Savings Account (ISA)? From April 2023, the Dividend Allowance will be cut from £2,000 to £1,000 and then fall further to £500 from April 2024. In addition, the annual CGT exemption will fall from £12,300 to £6,000 next year and then to £3,000 the following year. Dividends received on shares within an ISA are tax free and won’t impact your Dividend Allowance. Also, any profit you make when selling investments in your stocks and shares ISA is free of CGT. 

And don’t forget your pension  

Both the Annual Allowance and Lifetime Allowance are frozen, at £40,000 and £1,073,100 respectively. As these allowances haven’t increased with inflation, it effectively means those saving to the maximum extent possible with tax concessions can save less in real terms each year. 

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. 

Resolution – review and rebalance

Did you know that during periods of market volatility, portfolio drift can be accelerated, meaning your investments may no longer be aligned with your risk preferences and objectives? This is why it’s good practice to have regular portfolio reviews, in order to implement effective rebalancing if required. Regular reviews are also a great opportunity to make us aware of any changes in your objectives or circumstances. Why not start the new year as you mean to go on? Get in touch. 

The value of investments and income from them may go down. You may not get back the original amount invested. 

News in Review

“The beginning of a sign that a corner has been turned”

Data released last Wednesday revealed that UK inflation slowed for a second consecutive month, though prices still rose by 10.5% in the year to December.

The small drop, down from 10.7% in November, came despite food prices soaring to their highest level since 1977 in the month. Restaurant and hotel prices also rose sharply in December, while petrol and diesel costs eased slightly.

On Thursday, Andrew Bailey, Governor of the Bank of England (BoE), implied that the Bank might be close to stopping interest rate rises soon. In an interview, he hinted that the 4.5% peak priced in by the markets was aligned with the BoE’s own thinking. Commenting on the road ahead, Mr Bailey said that December’s figures, although expected, were “The beginning of a sign that a corner has been turned.” He continued, “What we think is the most likely outcome is that it (inflation) will fall quite rapidly this year, probably starting in the late spring, and that has a lot to do with energy pricing.”

A similar corner might have been turned in the US, with Treasury Secretary Janet Yellen saying on Monday that she has a “good feeling that inflation is coming down” and that the combination of a strong labour market and easing inflation were “very hopeful signs”.  She also spoke about the impact of receding energy and goods prices, reduced shipping rates, improvements in supply chains and rental housing costs which are likely to ease over next six months.

Meanwhile, last week, the latest data from Japan revealed that prices rose by 4% last month, to reach a 41-year high.

Levelling up the UK

Last Wednesday, the UK government released details of the latest round of its Levelling Up Fund, with over a hundred projects across the UK awarded a share of £2.1bn.

The money will be divided between better transport links (£672m), community regeneration (£821m) and the restoration of local heritage sites (£594m). Among 111 areas benefiting are a new rail link in Cornwall, the Eden Project North in Morecambe, a new AI campus in Blackpool and a major regeneration scheme in Gateshead.

Michael Gove, the government’s Levelling Up Secretary commented on the kicking off of Round 2 funding, “We are firing the starting gun on more than a hundred transformational projects in every corner of the UK that will revitalise communities that have historically been overlooked but are bursting with potential.”

UK retail sales slide in December

The volume of retail sales fell by 1% in December, according to figures published by the Office for National Statistics on Friday. Sales during the Christmas shopping period came in well below the 0.5% rise that had been forecast in a Reuters poll of economists, resulting in a second consecutive monthly decline in retail sales volumes.

Consumer confidence also fell in January, GfK’s monthly consumer confidence index revealed, returning near to historic lows after three months on the up. Enduring concerns about the economy, as well as the soaring cost of living, are prompting many to keep spending tight, analysts suggest.

Optimism in Davos

Delegates at the World Economic Forum (WEF) in Davos voiced tentative optimism on the economy last week, pointing to evidence of consumer resilience and demand for small business loans.

A major talking point was US president Joe Biden’s Inflation Reduction Act (IRA), a $369bn package that aims to stimulate investment in technologies that will help cut the country’s greenhouse gas emissions.

Markets

The FTSE 100 struggled after latest office for National Statistics (ONS) data showed government borrowing reached £27.4bn last month, jumping by £16.7bn against the same month a year earlier due to £7bn in costs from energy support schemes and soaring interest payments on debt. ONS said this was the highest monthly figure for December borrowing since records began in 1993. The FTSE 100 ended Tuesday down 0.35% at 7,757.36. The FTSE 250 closed up 0.27% to end the day on 19,855.31.

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 (25 January 2023)

News in Review

“Pubs and bars… did well as people went out to watch World Cup games”

Good news came on Friday, when the latest data release from the Office for National Statistics (ONS) showed that UK monthly real gross domestic product (GDP) was estimated to have increased by 0.1% in November. Beating expectations of around 0.2% economic contraction, this small figure follows robust monthly growth of 0.5% in October, bolstered by a rebound from business closures due to Queen Elizabeth II’s funeral in September.

The unexpected uptick in growth in November was attributed to “increases in telecommunications and computer programming,” according toONS Director of Economic Statistics Darren Morgan. Bolstered by services activity, with the largest growth contributor deriving from food and beverage activities, Mr Morgan continued, “Pubs and bars also did well as people went out to watch World Cup games. This was partially offset by further falls in some manufacturing industries, including the often-erratic pharmaceutical industry, as well as falls in transport and postal, partially due to the impact of strikes.”

The new data has thrown into question the likelihood of whether the UK economy entered a recession at the tail end of 2022. Defined as two consecutive quarters of shrinking economic output, a technical recession may yet be avoided. Output fell during the third quarter of 2022; December data is awaited to round off Q4 growth estimates.

UK trade deficit narrows

Other ONS data released last week highlighted a welcome subsidence in fuel prices, linked also to a decrease in goods imports from non-EU countries, which contributed to the narrowing of the trade in goods and services deficit by £6.5bn to £20.2bn in the three months to November, when compared to the previous three-month period. It is hoped that the decline in fuel prices will ease pressure on household finances. Chancellor Jeremy Hunt commented, “The most important help we can give is to stick to the plan to halve inflation this year, so we get the economy growing again.”

Bank of England (BoE) finalises bond sale

Following instability in the UK gilt market after the mini-Budget last Autumn, the BoE embarked on ‘temporary and targeted purchases of index-linked and long-dated conventional UK government bonds,’ to instil financial stability and contain the danger of credit conditions spreading to UK households and businesses. Last week the government confirmed that the £19.3bn portfolio of bonds purchased between 28 September and 14 October, has been sold. In a news release last week, the Bank outlined and justified the unwinding process which commenced on 29 November, ‘The gilts in this portfolio were made available to interested buyers via reverse enquiry windows. This approach helped ensure that the unwind was responsive to market demand and did not trigger renewed dysfunction. The Financial Policy Committee has welcomed the Bank’s timely but orderly unwind of this portfolio.’

BoE Governor, Andrew Bailey told MPs on the Treasury Select Committee that international investors are still wary about lending money to the UK government, saying “It’s going to take some time to convince everybody that we’re back to where we were before. Not because I doubt the current government, I am not trying in any sense to be negative. Obviously, there is something of a hangover effect.”

Travel bookings are up, up and away

Dubbed ‘Sunshine Saturday,’ the first Saturday of the year sawan influx of travel bookings, with one of the UK’s largest agents, Hays Travel seeing a fivefold increase on 7 January compared to ‘Sunshine Saturday’ in 2022. Owner Dame Irene Hays said, “Despite the cost-of-living challenges, the last thing people seem to want to give up is their annual holiday. We have seen an extremely busy start to the peak booking season.” Other agents also saw an uptick in bookings; Skyscanner reported a 30% increase in the first week of the year compared to the corresponding week in January 2019, and Virgin Atlantic said bookings were 70% higher during the weekend, year-on-year. The most popular destinations include Turkey, Greece, Spain and the US.

UK wages jump

Official ONS figures show that average pay including and excluding bonuses, rose by 6.4% between September and November compared with the same period in 2021, but when adjusted for inflation, wages fell in real terms by 2.6%.

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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 (18 January 2023)

Dividend news

According to the latest Dividend Monitor1, driven by sterling weakness, 2022 headline payouts are expected to rise to £97.4bn, up 11.0% on an adjusted basis, with underlying dividends expected to rise 13.4% to £87.2bn. The provisional forecast for UK dividends in 2023 anticipates a slight drop in headline dividends but modest underlying growth.

Looking ahead, Ian Stokes, Managing Director of Corporate Markets UK and Europe at Link Group commented, “For 2023, we expect a further reduction in mining dividends and likely lower one-off special dividends but outside the mining sector there is still room for payouts to rise, even with a weakening economy. Our provisional 2023 forecast suggests a slight drop in headline dividends to £96bn and a slight increase in the underlying total to £89bn. This implies no change in our expectation that UK payouts will only regain their pre-pandemic highs some time in 2025.”

1Link Group, 2022

The value of investments and income from them may go down. You may not get back the original amount invested.