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%.

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 (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.

Global growth

The International Monetary Fund (IMF)1 has predicted a challenging 2023, reducing growth expectations and forecasting economic contraction in a third of the world, in its latest World Economic Outlook entitled ‘Countering the Cost-of-Living Crisis.’

With the cost-of-living crisis ‘tightening financial conditions in most regions’, the outlook suggests that in order to restore price stability, monetary policy should stay the course and fiscal policy should aim to alleviate pressures ‘while maintaining a sufficiently tight stance.’

The global growth rate for 2023 has been revised down from previous expectations to 2.7%. This reflects ‘significant slowdowns’ for the largest economies as America’s gross domestic product (GDP) contracted in the first half of 2022, followed by the Euro area’s contraction in the second half of last year, and prolonged COVID-19 outbreaks and lockdowns in China. Closer to home, the IMF predict growth of 3.6% in 2022 and 0.3% in 2023 for the UK.

1IMF, 2022

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

New year – check your protection

The start of a new year is a great opportunity to reassess your finances. In 2023, with difficult economic conditions causing cost-of-living difficulties for many, it is especially important to make sure everything’s in order.

Protection is an essential part of long-term financial planning. The right protection for your unique needs is an indispensable safety net against any unexpected downturn in your financial situation.

2023 checklist

Is the level and type of cover you have suitable for your current needs? If your circumstances have changed, it is possible that you might need to update your cover too.

We know that soaring prices and bills are making things challenging right now. That’s why it is more important than ever to consider the role protection plays in your financial plan. Having the right protection in place provides certainty in the most challenging times.

Think twice

When assessing your finances, it is important to think carefully about your decisions. As well as leaving you and your loved ones without essential cover, if you cancel your protection now then take out a new policy in the future, it will more likely than not end up costing you more.

Think about any other spending that could be cancelled first. Remember that cancelling protection can undermine a carefully constructed financial plan.

Get in touch

If you are thinking about changing your protection in the new year, don’t act in haste. Contact us today to see how we can help.

News in Review

“I want to make a simple commitment: this government will always reflect the people’s priorities”

Last Wednesday, Prime Minister Rishi Sunak made his first major speech of the year, setting out five key goals on which he insisted voters should hold him to account.

In a wide-ranging set of promises, Mr Sunak committed to halving inflation in 2023 and bringing down NHS waiting lists in the next two years. He also pledged to grow the economy, ensure national debt is falling and pass new laws to stop small boats from crossing the Channel.

A record number of people in England are currently on an NHS waiting list, largely the result of the pandemic-related backlog and staffing shortages. On Monday, talks to avert NHS strikes scheduled for January fell through, leaving industrial action likely to proceed.

In his speech, Mr Sunak said, “New Year should be a time of optimism and excitement. Yet I know many of you look ahead to 2023 with apprehension… Today, I want to make a simple commitment: this government will always reflect the people’s priorities.”

Recession looms for a third of world

A third of the global economy will be in recession this year, the head of the International Monetary Fund (IMF) warned in an interview last week.

Kristalina Georgieva pointed to slowing growth in the US, EU and China as a result of the war in Ukraine, rising prices and higher interest rates. The spread of COVID-19 in China will lead to a “tough” couple of months for the country, she said, as well as negatively impacting regional and global growth.

“Even countries that are not in recession, it would feel like recession for hundreds of millions of people” Ms Georgieva added.

On Tuesday, the World Bank cut its 2023 growth forecast from 2.9% to 1.7%, the lowest such figure since 1991, noting that the global economy is ‘perilously close to falling into recession’.

Mixed bag for UK retail

UK shops are facing a challenging six months ahead, according to newly released analysis by the British Retail Consortium (BRC). Customers facing higher prices will buy less, the BRC predicts, resulting in retail sales growing by just 1% to 2.3% in H1 2023. The second half of the year is expected to be more positive, however, with anticipated growth of 3.6% to 4.7%.

Kris Hamer, the BRC’s Director of Insight, commented, “There is cause for optimism in the second half of 2023, when we expect inflation to ease and improving consumer confidence to result in an improvement to sales growth, and corresponding volumes.”

Demand for electric vehicles (EVs) soars

On Thursday, the Society of Motor Manufacturers and Traders (SMMT) released its annual breakdown of UK new car registrations, which revealed a growing demand for EVs.

In a strong year, 267,000 new electric cars were sold, up from 190,700 a year earlier, meaning that EVs now account for 16.6% of all new sales. Conversely, the total number of new cars registered in 2022 (1.61 million) was the lowest such figure since 1992.

New mortgage approvals plummet

In the mortgage market, the latest Bank of England figures showed new approvals at their lowest level since June 2020. Higher borrowing costs caused mortgage approvals to fall to 46,100 in November 2022, down from 57,800 a month earlier. In November, the ‘effective’ or actual interest rate on newly drawn mortgages increased by 26 basis points, to 3.35%, with analysts warning that further increases should be expected.

Markets

After a strong start to 2023, London and European stocks closed in the red on Tuesday with investors mulling over UK retail Christmas sales and a speech by US Fed Chair Jerome Powell in which he failed to give clues as to the trajectory of monetary policy.  The next US CPI rate, giving the December inflation rate, is due to be released on Thursday.

The FTSE 100 ended the session down 0.39% at 7,694.49, and the FTSE 250 closed down 0.45% at 19,390.97.

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 (11 January 2023)

Housing and mortgages 2023 – what’s in store?

After a turbulent 2022, the new year brings hope and uncertainty in equal measure. So, what does 2023 have in store for the housing and mortgage markets?

Back to normal?

Average mortgage rates rose sharply after the ‘mini-budget’ announced by former Chancellor Kwasi Kwarteng in September 2022. Although significantly higher than at the start of last year, average rates are expected to continue to settle into 2023.

Higher and lower

The low rates of the past decade, therefore, seem to be over, with mid-single digits now the norm. For mortgage holders, the new reality of higher rates will obviously have a knock-on impact on household finances, which are already squeezed.

A further effect could be a downturn in the housing market. House prices are expected to fall in 2023, after three pandemic-influenced years of growth. The astronomical year-on-year rises of 16% in July 2022 and 13.6% in August 2022 (which took the average house price to a record high of £296,000) are unlikely to be seen in the coming years1.

Supply and demand

Instead, estate agent Savills predicts a 10% fall in house prices in 2023 before a return to growth from 2024 onwards.

The exact figures will depend on the various factors that influence supply and demand. In 2022, as demand waned, house prices remained resilient due to limited supply. Supply is not expected to increase much in the coming years, analysts warn.

Demand, meanwhile, could receive a boost from the raising of the nil-rate threshold of Stamp Duty in parts of the UK, while pandemic factors such as the need for more space and a home office might still play a part. If a modest decline in house prices takes place, with possible regional variations, desire to buy could be further accelerated.

Your future

With further Bank Rate increases likely in 2023 amid ongoing cost-of-living concerns, the economic conditions remain challenging for many. We can guide you through the busy market and help you stay focused on your goals in 2023.

1Office for National Statistics, 2022

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

Building retirement resilience in 2023

Although there are many challenges on the household finance front at the moment, the start of a new year always provides the perfect opportunity for a financial health check; and a key element of any finance MOT will inevitably be an honest appraisal of your financial fitness for life after work.

Retirement income targets

A good starting point for any retirement health check is to consider the lifestyle you want to enjoy when you retire and how much it will cost to fund that standard of living. Recent research1 provides an indication of how much retirees typically spend, with a two-person household requiring an annual income of around £28,000 to be ‘comfortable’ or £45,000 if they want to include luxuries such as long-haul trips.

Many not saving enough

Worryingly though, a report2 from The Pensions and Lifetime Savings Association (PLSA) suggests many people are still not saving enough for retirement. They estimate that around half of all savers risk missing targets set by the Pensions Commission in 2005, including a significant proportion on average earnings. The report also suggests one in five households risks failing to achieve even a ‘minimum’ standard of living in retirement.

‘Set and forget’

The introduction of auto enrolment ten years ago did provide a big advance in terms of normalising workplace pension provision. This success, however, has not translated into genuine pension engagement, but rather encouraged a ‘set and forget’ mentality, with people still often unsure how much they actually need to save; and, for many, relying solely on auto enrolment contributions will not guarantee a comfortable, let alone luxurious, retirement.

We’re here for you

Whatever your age, retirement planning needs to be on your financial radar, as starting to save at the earliest opportunity provides the best chance of accumulating a pension pot capable of funding the retirement you deserve. Let’s make 2023 the year you get your retirement savings plans firmly on track.

1Which?, 2022

2PLSA, 2022

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.

Your investment focus for 2023

By any comparison, the past 12 months have been tough for investors with a series of shocks impacting markets and, as 2023 dawns, uncertainties remain. One constant on the investment horizon, though, is the requirement to be strategic with your portfolio. A sound strategy based on careful planning; making purposeful decisions, based on thorough research and reliable processes, will stand you in good stead.

Last year saw markets struggle with bouts of volatility as a combination of high inflation, rising interest rates and the war in Ukraine brought about challenging headwinds and markets sought a stable footing. As a result, fund inflows slowed while cash as a percentage of investors’ portfolios rose, prompting warnings that investors need to be aware of limitations to the Financial Services Compensation Scheme (FSCS) for cash balances.

Identifying opportunities

With large amounts of money on the sidelines, using our knowledge, we aim to identify opportunities and position portfolios to benefit from recession-resistant companies in which we have conviction. Those who still have the capacity to invest should consider adding back to their portfolios in order to take advantage of any potential low valuations.

Battling inflation

Investors also need to be aware of the erosive impact of inflation on cash-based savings. In the current economic climate, anyone holding a significant proportion of their assets in cash, even with savings rates improving, will inevitably see the value of their wealth decline in real terms. In essence, equities offer a better potential defence in the battle with inflation.

Trust in our process

Experienced investor or not, staying calm during periods of market turmoil is never easy but adapting your mindset and focusing on investment strategy rather than market sentiment is vital. Investing in the stock market does clearly involve a level of risk but the adoption of a carefully considered strategy based on sound financial planning principles undoubtedly offers investors the best chance of success.

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.

News in Review

“For hard-working families facing today’s challenging economic conditions, it’s right that we continue to help them secure their first home or move into their dream house”

The government has confirmed the extension of the Mortgage Guarantee Scheme by one year to the end of December 2023. Positive news for people with 5% deposits, the scheme provides lenders with the financial guarantees they need to provide mortgages that cover the other 95%, on a house worth up to £600,000.

Originally intended to close at the end of 2022, the scheme was launched in April 2021 and has helped over 24,000 households. Available to first-time buyers and existing homeowners, the scheme has helped support the wider housing sector. During the pandemic, when lenders withdrew high loan-to-value (LTV) products, the scheme helped restore competition and consumer choice to the market, according to the government.

John Glen MP, Chief Secretary to the Treasury, commented on the scheme extension, “For hard-working families facing today’s challenging economic conditions, it’s right that we continue to help them secure their first home or move into their dream house. Extending this scheme means thousands more have the chance to benefit and supports the market as we navigate through these difficult times.”

Manufacturing “notably weaker”

Recent data from the Office for National Statistics (ONS) shows that the UK economy contracted by 0.3% in the three months to September 2022 (Q3), revised down from a previous estimate of a 0.2% fall. In addition, growth data for the first half of last year has also been revised down, with Q1 growth of 0.6% and Q2 growth of 0.1% predicted, previously estimated at 0.7% and 0.2% respectively. Director of Economic Statistics at ONS, Darren Morgan, spoke about growth, “Our revised figures show the economy performed slightly less well over the last year than we previously estimated”, he added that manufacturing and electricity generation were “notably weaker.”

Christmas Day tax returns top 3,000

Were you amongst the 3,275, people who chose Christmas Day to file their Self-Assessment tax return? HM Revenue and Customs (HMRC) data has revealed that 22,060 people submitted their online form for the 2021-22 tax year between 24 and 26 December 2022, of which 141 opted to file it between 23:00 and 23:59 on Christmas Eve. Interestingly though, the total number of returns filed over the three-day period was 30% lower than the same period in 2021, when the Omicron variant meddled with the festive plans of many.

Extra bank holiday popular with shoppers

Retail data analysis has shown that many festive shoppers chose to exploit the extra bank holiday on Tuesday 27 December in search of post-Christmas bargains, with the day proving more popular for shoppers than Boxing Day. Visiting retail parks, high streets and shopping centres, footfall was almost 40% higher than on bank holiday Monday. Diane Wehrle, Springboard Insights Director, commented on their data, “The 36.6% increase in footfall from Boxing Day to 27 December suggests that consumers remain keen to shop for sale bargains post-Christmas. Increased inflation may act as an incentive for many shoppers who are keen to secure purchases ahead of any further price rises.” Retail parks recorded the largest increase in visitors on 27 December, however footfall does still remain below pre-pandemic levels.

Markets

Rounding off a challenging year, the UK’s benchmark index ended the year slightly higher in contrast to the sharp drop in other domestic, US and European markets. The blue-chip FTSE 100 index registered a modest annual gain of 0.91%, while the domestically focused FTSE 250, more closely correlated to the UK economy, weighed down by economic and political uncertainty, closed the year 19.70% lower. In the US, the Dow closed the year registering its biggest annual loss since the 2008 financial crisis indicating how the Federal Reserve’s quickest succession of rate hikes in forty years have taken their toll on markets. The Dow closed the year down around 8.78%, while the NASDAQ closed the year down over 33%.

On the first trading day of 2023, London stocks were positive, helped by a drop in sterling and amid optimism around the reopening of the Chinese economy. The FTSE 100 ended the session up 1.37% at 7,554.09, and the FTSE 250 was ahead 1.49% at 19,134.34.

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 (4 January 2023)