Economic Review – October 2022

Chancellor’s fiscal statement delayed

The government has pushed back the date of its much-anticipated Medium-Term Fiscal Plan in order to ensure it is based on the “most accurate” economic forecasts available.

Chancellor Jeremy Hunt had been due to deliver his first fiscal statement detailing how the government plans to repair the country’s public finances on 31 October, but following Rishi Sunak’s appointment as Prime Minister, it was decided to move the announcement back by two-and-a-half weeks.

The fiscal event, which will now be delivered on 17 November, has also been upgraded to a full Autumn Statement, paving the way for wider taxation policies to be announced. The Chancellor’s tax and spending plans will also be accompanied by updated economic growth and borrowing forecasts produced by the independent Office for Budget Responsibility (OBR).

When announcing the postponement, Mr Hunt said, “Our number one priority is economic stability and restoring confidence that the United Kingdom is a country that pays its way. I’m willing to make choices that are politically embarrassing if they’re the right thing to do for the country, if they’re in the national interest.”

Financial markets were relatively calm after the news broke with analysts describing the delay as understandable, and both sterling and government bond prices were little changed by the announcement. The International Monetary Fund, which had criticised the previous Chancellor’s unfunded tax cuts, offered support to the incoming Prime Minister, with the organisation’s Chief Kristalina Georgieva suggesting Rishi Sunak will bring “fiscal discipline” to the UK.

The Chancellor has been keen to demonstrate his fiscal credentials, reiterating his commitment to “debt falling over the medium term.” This suggests the government will have some tough tax and spending decisions to make in order to fill the budget black hole, with Treasury officials warning people “should not underestimate the scale of this challenge.”

Inflation back at 40-year high

Soaring food prices have pushed the UK inflation rate back to a four-decade high, fuelling expectations of a sharp interest rate hike at the next Bank of England (BoE) Monetary Policy Committee (MPC) meeting in early November.

Data released last month by the Office for National Statistics (ONS) showed that the headline rate of inflation rose to 10.1% in September after dipping to 9.9% in August. This was slightly above analysts’ expectations and took consumer price inflation back to a 40-year high previously hit in July.

The food and non-alcoholic drinks sector was the biggest upward contributor to September’s rise, with prices in this category recording their biggest jump since April 1980. ONS said the price of most key items in an average household’s food basket rose, including fish, sugar, fruit and rice, as the war in Ukraine and recent weakness in the pound made both food products and ingredients more expensive.

This further jump in inflation has placed additional pressure on the BoE to raise interest rates when its next MPC meeting concludes on 3 November. Speaking at a G30 event in Washington in mid-October, Bank Governor Andrew Bailey acknowledged rates may need to rise by more than the BoE had previously envisaged. The Governor said, “We will not hesitate to raise interest rates to meet the inflation target. And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”

While the Chancellor’s decision to delay his fiscal statement until after the Bank’s November meeting will make policymakers’ deliberations more difficult, analysts still expect them to take decisive action. Indeed, over half of respondents in a recent Reuters poll of economists expect rates to rise by 0.75% in November, with most of the others predicting a 1% increase.

Markets (Data compiled by TOMD)

As October drew to a close, UK stock markets benefited from a Halloween rebound. The blue-chip FTSE 100 index closed the month at a five-week high, up 2.91% to 7,094.53, buoyed by gains across Britain’s high street banks, amid expectations of an imminent Bank Rate rise. The FTSE 250 registered a gain of 4.20%, while the FTSE AIM ended October with a small loss of 0.03%.

On the continent, the Euro Stoxx 50 closed the month up 9.02%. Eurozone annual inflation reached a record high of 10.7% in October, ahead of analyst expectations of 10.3%. In Japan, the Nikkei 225 closed October on 27,587.46, up 6.36%. The Bank of Japan has chosen to maintain ultra-low interest rates, bucking the tightening trend among global central banks.

Across the pond, earnings season is in full swing and US markets are awaiting the highly anticipated Federal Reserve rates meeting in early November. Following a challenging September, markets made a comeback in October, with the Dow closing the month up 13.95% on 32,732.95, its best monthly advance since January 1976. Meanwhile the tech-orientated Nasdaq closed October on 10,988.15, up 3.90%.

On the foreign exchanges, the euro closed at €1.16 against sterling. The US dollar closed the month at $1.14 against sterling and at $0.98 against the euro.

Gold is currently trading at around $1,639 a troy ounce, a loss of 1.96% on the month. Pressure from anticipated rate hikes, rising yields and the relative strength of the dollar are weighing on the precious metal. Brent Crude closed the month trading at around $91 a barrel, a gain of 7.05%, following a decision by the Organization of the Petroleum Exporting Countries (OPEC+) alliance to make sizable cuts to output from November.

UK economy unexpectedly shrinks

Growth statistics released by ONS show the economy unexpectedly contracted in August while forward-looking indicators point to further deterioration following the country’s recent political and market turmoil.

According to the latest gross domestic product (GDP) figures the UK economy shrank by 0.3% in August with output in both the production and services sectors falling back. ONS noted that a number of customer-facing businesses, including retail, hairdressers and hotels, had all fared ‘relatively poorly’ during the month.

August’s figure was significantly weaker than analysts’ expectations, with the consensus from a Reuters poll of economists pointing to zero growth. July’s GDP figure was also revised down to 0.1% from a previous estimate of 0.2%; as a result, output across the three months to August as a whole fell by 0.3%.

Analysts have warned that September could see an even sharper decline, partly due to the extra Bank Holiday to mark the Queen’s funeral and reduction in business opening hours during the period of mourning. Recent survey evidence also suggests the downturn is set to intensify, with October’s preliminary headline reading of S&P Global’s Purchasing Managers’ Index showing the pace of economic decline ‘gathered momentum after the recent political and financial market upheavals.’

Unemployment rate falls again

The latest labour market statistics showed that the rate of unemployment in the UK declined to its lowest level in nearly 50 years, driven by an increase in the number of people leaving the workforce.

ONS figures showed the unemployment rate fell to 3.5% in the three months to August, its lowest level since December to February 1974. This decline, however, was due to an increase in the number of working-age adults who are neither working nor looking for work.

The economic inactivity rate, which measures the proportion of 16 to 64-year-olds who are not in the labour force, rose to 21.7% in the June to August period, an increase of 0.6 percentage points from the previous quarter. This rise was partly driven by an increase in student numbers, as well as a rise in the number of people suffering with a long-term illness, which rose to a record high.

This resulted in the ratio of unemployed people to job vacancies dropping to a record low, despite the latest data revealing a decline in the total number of vacancies. ONS noted that the fall in vacancies was due to a number of employers reducing recruitment ‘due to a variety of economic pressures.’

All details are correct at the time of writing (01 Nov 2022).

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

“Our number one priority is economic stability and restoring confidence”

Last week during the first meeting of the new Cabinet in Downing Street, Chancellor Jeremy Hunt announced the postponement of the government’s fiscal statement from 31 October to 17 November.

Delayed by over a fortnight, the Medium-Term Fiscal Statement, due to be delivered in the House of Commons on Halloween, along with a forecast from the Office for Budget Responsibility (OBR), is now scheduled to be a full Autumn Statement.

Justifying the delay, Mr Hunt said that new Prime Minister Rishi Sunak’s appointment had brought about the “prospect of much longer-term stability for the economy” so a delay will ensure “the right decisions” are made.

He continued, “Our number one priority is economic stability and restoring confidence… but it is also extremely important the statement is based on the most accurate possible economic forecasts and forecasts of public finances.”

The statement is expected to include the OBR’s economic forecast, addressing debt, and plans to put public spending on a sustainable footing.

Next MPC meeting imminent

The Bank of England’s Monetary Policy Committee (MPC) meets this week and will make their next announcements on interest rates on 3 November. The Bank has made increases of half a percentage point or less, on the seven occasions Bank Rate has been increased since last December, to reach its current level of 2.25%. Some commentators are predicting a full percentage point increase to 3.25%, while others think a 0.75 percentage point increase to 3% is a feasible outcome.

FCA’s plan to tackle greenwashing

The Financial Conduct Authority (FCA) has proposed a package of new measures aimed at protecting consumers and improving trust in sustainable investment products, by clamping down on greenwashing. The measures include introducing investment product sustainability labels to give consumers the confidence to understand products, as well as restrictions on how terms like ‘green,’ ‘sustainable’ and ‘ESG’ can be used, and to eradicate exaggerated, misleading or unsubstantiated claims about ESG credentials. Other plans include disclosing investments that a consumer may not expect to be held in the product.

Sacha Sadan, FCA’s Director of Environment Social and Governance, commented, “Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that they actually are. Our proposed rules will help consumers and firms build trust in this sector. This supports investment in solutions to some of the world’s biggest ESG challenges. This places the UK at the forefront of sustainable investment internationally. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.” 

Lost pension values climbing

Data released last week by the Pension Policy Institute (PPI) has highlighted that the value of lost pension pots has risen by £7bn (37%) over the last four years, meaning the total value of lost pensions has now topped £26.6bn. In addition, the number of pension pots considered as lost has increased by 75% over the last four years.

One key finding has shown that high unemployment levels prompted by the pandemic, combined with automatic enrolment, mean an especially large number of people may have left jobs with pension schemes, creating a wave of deferred pots which may become lost.

Director of Policy, Long‑Term Savings and Protection at the Association of British Insurers (ABI), Yvonne Braun said that people are “missing out on money that can make a real difference to their quality of life in retirement. It’s time to pay your pension some attention and use the resources available to track down any lost pots.”

Markets

UK stock markets benefited from a Halloween rebound at the end of October, with the FTSE 100 closing the month at a five-week high, buoyed by gains across Britain’s high street banks, amid expectations of an imminent Bank Rate rise.

London-listed mining giants soared on Tuesday amid hopes that China was looking at a plan for the unwinding of its current zero-COVID strategy. By the end of the day, the FTSE 100 closed at 7,186.16, a 1.3% rise, after briefly peaking at 7,221, higher than before the ‘mini budget’ in late September. The FTSE 250 ended up 1.71% at 18,195.90.

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 (2 November 2022)

Residential Market Review – October 2022

Mortgage turmoil shakes housing market

A turbulent economic and political month has dramatically altered the outlook for the UK housing market.

The government’s ‘mini-budget’, announced on 23rd September, caused interest rate expectations to soar, which led to lenders rapidly withdrawing products. A third of mortgage deals disappeared overnight on 27th September; within a fortnight, 43% fewer products were available, according to MoneyFacts.

With the majority of the ‘mini-budget’ measures now shelved, analysts expect some buyers will delay their purchase in the hope of falling interest rates. If rates do hit the current expected levels, however, the budgets of those looking to buy could be significantly impacted.

Prior to the market turmoil, data released for sales activity in August had been positive, with 114,000 transactions recorded, according to HM Revenue and Customs. This is roughly in line with the 2017–2019 average; indeed, forward indicators for September had suggested sales agreed (12%) and mortgage approvals (14%) would also be above pre-pandemic levels.

Analysts agree that activity is likely to fall sharply in October. Buyer caution could quickly shift the balance of supply and demand over the next few weeks if uncertainty in the mortgage market endures.

Stamp Duty changes

Home movers in the lower price brackets in England and Northern Ireland look set to save up to £2,500 following the Stamp Duty changes announced in the government’s ‘mini-budget’.

The measure, one of the few to have survived the new Chancellor’s statement on 17th October, increases the residential nil-rate threshold from £125,000 to £250,000.

For First-Time Buyers (FTBs), the nil-rate threshold has risen from £300,000 to £425,000. The maximum property price to be eligible for First Time Buyers’ Relief is now £625,000.

The government describes the measure as part of its commitment to support homeownership and promote mobility in the housing market. Announcing the measure, former Chancellor Kwasi Kwarteng noted, “Cuts to Stamp Duty will get the housing market moving and support first-time buyers to put down roots.”

Scottish tenants protected by rent freeze

New legislation passed by the Scottish Parliament has frozen most rents until April 2023 in response to soaring housing costs and cost-of-living concerns.

The Cost of Living (Tenant Protection) (Scotland) Bill, which was fast-tracked through the Scottish parliament’s scrutiny process, gives ministers temporary powers to cap private and social rents. Almost four in ten households currently rent their home in Scotland.

First minister, Nicola Sturgeon, has described the cost-of-living crisis as a “humanitarian emergency” that “poses a danger not just to livelihoods but to lives”.

Exceptions to the rent freeze are allowed where a landlord faces increased property costs, mortgage interest payments and some insurance costs. Evictions too will only be allowed under certain circumstances.

All details are correct at the time of writing (20 September 2022)

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 – October 2022

Rising yields and flight to quality

Most commercial property yields rose in September, according to the latest ‘Market in Minutes: UK Commercial’ report from Savills, leading to an average prime yield of 5.23%, compared to 4.95% the month before.

A total of seven sectors saw an upward trend in September 2022, including shopping centres and leisure parks. Despite this, investment volumes for the year to the end of Q3 remain about 3% below the same point in 2021.

Prime yields for offices rose too, though data for the office sector remain mixed as occupiers try to work out how much space they need in their next office acquisition. In the ‘Big 6’ office markets, for example, companies moving to new premises over 10,000 sq. ft in 2021 and H1 2022 required, on average, 8% less space than previously.

Although some occupiers are reducing their office provision in response to hybrid working, many are prepared to pay higher rents for higher-quality space. The number of transactions over £35 per sq. ft have risen by 210% since 2019.

Commenting on this trend, Stephen Lang, Director of Commercial Research at Savills said, “With the continuing flight-to-quality in the markets, occupiers taking smaller spaces are willing to pay higher rents for a better office space.”

New lease of life for Battersea Power Station

Almost 40 years after it was decommissioned, Battersea Power Station has been transformed into a mixed-use development – costing £9bn and taking eight years of labour.

The renovation, backed by a group of Malaysian investors, has turned Battersea Power Station into offices, flats, shops and more.

The famous Art Deco building, experts say, still retains much of its original character. The two turbine halls have become retail areas and the control rooms are now bars. 254 luxury apartments, restaurants and cafés sit side-by-side with a theatre and event spaces.

Most prominent, perhaps, is the boiler room, which has become an office space. Apple has taken 500,000 sq. ft of this across six floors, with room for 3,000 employees.

Overseas investors drive investment in Scotland

The declining value of the pound could see overseas investors’ share of investment in Scottish commercial property reach record levels, according to Knight Frank.

Q3 data showed that overseas investors are responsible for more than half of current volumes, propelling a year-on-year rise of 37% in the year to September.

Of the £1.46bn invested so far in 2022, offices led the way, representing more than a third (£486m) of total investment volumes. Industrial property, meanwhile, almost doubled to £300m, resurgent after its pandemic slump.

Alasdair Steele, Head of Scotland Commercial at Knight Frank Scotland, commented, “There has been a great deal of uncertainty this year, starting with the complications of the ongoing pandemic, the conflict in Ukraine, and rising inflation and interest rates; but Scotland’s commercial property market has continued to fare well. This is particularly true for assets that are in high demand, namely prime offices and industrials.”

All details are correct at the time of writing (20 October 2022)

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.

Steering you through troubled waters

Even experienced investors are likely to find the current investment environment a challenge, particularly when one considers the array of uncertainties in the post-COVID economy which are so fundamentally different to those faced during the last two years. Opportunities, however, are still available to investors who can steer a safe course through choppy waters.

Uncertainty abounds

One look at the latest economic forecasts released by the International Monetary Fund (IMF) gives a strong hint of the challenges that lie ahead. The international soothsayer described the current outlook as ‘gloomy and more uncertain’ as it reduced its global growth forecast to 3.2% this year and 2.9% in 2023, downgrades of 0.4 and 0.7 percentage points from April’s predictions.

Risks skewed downwards

The IMF noted several shocks that have hit a world economy already weakened by the pandemic. These include higher-than-expected inflation worldwide which is triggering tighter financial conditions; a worse-than-anticipated slowdown in China, and further fallout from the war in Ukraine. It also stressed that risks are ‘overwhelmingly tilted to the downside.’

But opportunities remain

This economic sea-change clearly presents a serious challenge to investors. However, while managing portfolios in a high-inflation environment may require some change in course, there are still opportunities out there.

Help at hand

And of course, we’re always here to help. So, if you want to take stock of your investments, get in touch and we’ll be happy to help steer you through any troubled waters.

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.

Controlling your investment emotions

While Rudyard Kipling may not have been thinking about investments when he penned his famous poem ‘If’, his words will certainly resonate with investors at the moment. The current investment landscape undoubtedly presents a challenge, even for experienced investors, but those who can keep their head when all about are losing theirs definitely have the best chance of success.

Emotional roller coaster

It can be extremely difficult for investors to keep their emotions in check when there is so much economic and geopolitical noise being reported on a daily basis. But market volatility is normal and investors who hold a well-diversified, risk-appropriate portfolio and stay focused on their long-term objectives, goals and aspirations are historically best equipped to get through such periods.

Clear goals are essential

Setting clear goals and developing a corresponding plan to achieve them is invariably the key to investment success. Although plans may need to be adapted from time to time to take account of changes in individual circumstances or investment goals, having a well-thought-out strategy helps investors deal with unexpected events and remain calm when markets become turbulent.

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

News in Review

“We now need stability and unity”

In another whirlwind week in UK politics, Liz Truss resigned last Thursday, the shortest serving Prime Minister in British history. Speaking outside Downing Street she said she could not deliver the mandate on which she was elected. Her resignation after just 44 days kickstarted a contest to find the next Conservative leader and PM.

A fast-tracked leadership contest saw the benchmark set high, with hopefuls needing to receive the backing of 100 MPs by 2pm on Monday. Sir Graham Brady, 1922 Committee Chair commented on the urgent need for stability, “We’re deeply conscious of the imperative of the national interest of resolving this clearly and quickly.”

Boris Johnson, Penny Mordaunt and Rishi Sunak threw their hats in the ring. Johnson pulled out of the race on Sunday, and with Mordaunt seemingly unable to get the backing of 100 MPs, Mr Sunak was named the next Prime Minister, the UK’s first British Asian PM and the youngest leader in over two centuries.

In a brief address on Monday afternoon, Mr Sunak warned the country faced “profound economic challenges” adding, “We now need stability and unity, and I will make it my upmost priority to bring our party and our country together because that is the only way we will overcome the challenges we face and build a better more prosperous future…I pledge that I will serve you with integrity and humility and I will work day in day out to deliver for the British people.”

After meeting King Charles, Mr Sunak gave a speech outside Number 10, saying that he would restore trust, rebuild confidence and lead the UK through “a profound economic crisis” before he set to work on appointing his cabinet.

Dominic Raab has been confirmed as Deputy PM, Grant Shapps was appointed business secretary and Jeremy Hunt remains as Chancellor.

Inflation continues its ascent

According to the most recent data from the Office for National Statistics (ONS), food and non-alcoholic beverage prices in the UK are increasing at their fastest pace in over forty years, since April 1980. In the 12 months to September, food costs leapt by 14.6%, up from 13.1% in the 12 months to August. Key drivers to the rise were price increases in meat, cereal, bread and dairy products.

As food price rises continue their ascent and people struggle with the cost of key household staples, Karen Betts, Chief Executive of the Food and Drink Federation commented on the rise, “Food and drink manufacturers continue to do everything they can to keep product prices down, but huge rises in ingredient, raw material, energy and other costs mean they have no choice but to pass some price rises on.”

She continued, “Recent economic turbulence in the UK has made a difficult operating environment for businesses in our sector worse.  Companies urgently need a stable economic outlook and a coherent policy framework to enable them to make investment and other critical decisions that are central to their businesses and to the prosperity of their local communities.”

IHT receipts

The latest Inheritance Tax (IHT) figures released last week have intensified the debate over government intentions. Total HM Revenue and Customs (HMRC) receipts for April 2022 to September 2022 were £3.5bn, which is £0.4bn higher than in the same period last year. Government IHT receipts were bolstered by £557m taken during September, and high receipts in June were attributed to a ‘small number of higher-value payments than usual.’

Markets

The markets reacted positively to the departure of Liz Truss, with European stocks closing higher on Thursday. On the same day, in the UK, the FTSE 100 closed up 0.3% and sterling rose 0.7% to reach $1.13 against the dollar. On Tuesday, following Mr Sunak’s first speech, the pound hit its highest level against the dollar since 15 September at $1.14. The FTSE 100 ended the session down 0.07% to close on 7,013.48 and the FTSE 250 was up 2.85% to close on 17,831.63

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 October 2022)

In the News – Home Finance

Gardens uprooted

A quarter (25%) of homeowners in the UK with outside space have turned all or part of their garden into a driveway and a further 17% plan to make this change1. As well as parking space proving to be popular, one in ten homeowners with outside space have replaced at least some of their garden’s natural lawn with artificial grass; a further 29% are considering making the swap. In contrast, 12% have replaced part or all of their garden with a wildflower meadow and 7% have turned their driveways into a planted garden.

Stamp Duty

On 23 September, the government outlined a series of tax cuts and measures, most of which have since been reversed. One of the surviving tax announcements was a reduction in Stamp Duty Land Tax (SDLT) in England and Northern Ireland, raising the residential nil-rate threshold from £125,000 to £250,000, with immediate effect, and First Time Buyers Relief from £300,000 to £425,000. The maximum amount that an individual can pay for a home while remaining eligible for First Time Buyers’ Relief, was increased from £500,000 to £625,000. As SDLT is devolved in Scotland and Wales, the Scottish and Welsh Governments will receive funding through an agreed fiscal framework to ‘allocate as they see fit.’ 

1Aviva, 2022     

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

Money/Wealth – In the News

With the next 30 years set to witness the largest ever intergenerational passing of wealth, the need for inheritance advice has never been greater. Intergenerational planning, however, can also help with more immediate financial needs, particularly when generations work collaboratively to find solutions that support the whole family both now and in the future.

Healthy dividends

UK listed companies paid out £37bn in shareholder dividends between April and June, up 38.6% from the same period last year, making Q2 the second largest UK dividend payout on record1.

Large one-off special payments were a key driver, but underlying dividends, which exclude these volatile specials, jumped by 27% to £32bn, boosted by weaker sterling.

Pausing pensions could be costly

Analysis2 has revealed that reducing or stopping pension contributions, even for a relatively short period of time such as a year, can have a significant impact on your final pension pot, with savers potentially being thousands of pounds less well off in retirement. Almost all (93%) of those surveyed said they are feeling the impact of increasing costs and inflation. Whilst 77% expect to have to make cutbacks on spending or saving, an encouragingly low figure of 6% said they would reduce their pension contributions.

1LINK Group, 2022

2Standard Life, 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.

News in Review

“We need to act now to reassure the markets of our fiscal discipline”

Last Friday, in response to the mounting political crisis over his tax-cutting Growth Plan, Kwasi Kwarteng arrived back earlier than scheduled from the International Monetary Fund (IMF) conference in Washington, and headed straight to Downing Steet, where the Prime Minister sacked him from the role after just 38 days.

Jeremy Hunt, former Foreign Secretary and Health Secretary, who also competed for the Conservative party leadership twice, was named as the new Chancellor. Hunt will now deliver the Medium-Term Fiscal Plan on 31 October, alongside the Office for Budget Responsibility (OBR) forecast.

Rounding off another challenging week for the UK economy and the government, Liz Truss held a Downing Street press conference on Friday where she announced that Corporation Tax will rise from 19% to 25% next year, another major U-turn on the tax-cutting Growth Plan, unveiled just three weeks previously. Truss admitted that her radical agenda had rattled financial markets, admitting that her borrowing-fuelled plan “went further and faster than markets were expecting,” before adding, “we need to act now to reassure the markets of our fiscal discipline.”

The government has come under intense pressure to take action to reverse aspects of the Growth Plan, in order to alleviate market concerns.

“The most important objective for our country right now is stability”

The fourth Chancellor in as many months, Mr Hunt made an emergency statement on Monday morning in a bid to stabilise financial markets, before addressing the Commons later in the afternoon. Declaring “the most important objective for our country right now is stability,” he set out his intentions to scrap almost all the tax measures set out in the Growth Plan not yet legislated for in Parliament. These include abolishing the planned reduction to the basic rate of Income Tax from 20% to 19% next April, abandoning the Dividend Tax rate changes, in addition to ditching the VAT-free shopping scheme for non-UK visitors. The government will also not be proceeding with reversal of the off-payroll working reforms introduced in 2017 and 2021, or freezing alcohol duty rates as previously pledged.

He also announced a significant amendment to the government’s energy plan, which will now only run to April 2023, with a Treasury-led review introduced to determine how to support households and businesses thereafter.

The planned reduction to Stamp Duty will proceed, as will the reversal of the 1.25 percentage point increase in National Insurance contributions.

Saying he remains confident about the UK’s long-term economic prospects, the new Chancellor did caution, “growth requires confidence and stability, and the United Kingdom will always pay its way. This government will therefore make whatever tough decisions are necessary to do so.”

Markets

The Prime Minister’s appearance on Friday erased any gains made following Kwarteng’s dismissal, as she failed to outline a new policy direction. However, Mr Hunt’s reversal of most of the mini-budget’s tax cuts and announcement of spending cuts to come, saw market confidence improve with the FTSE 100 ending Tuesday’s session up 0.24% at 6,936.74, and the FTSE 250 ahead by 0.15% at 17,529.31.

Mortgages rates at a high

Average mortgage interest rates are the highest they have been since the 2008 financial crisis, with the average rate for a two-year fixed rate loan at 6.53% and 6.36% for a five-year fixed deal, according to Moneyfacts.

Countering the Cost-of-Living Crisis

In its latestWorld Economic Outlook entitled ‘Countering the Cost-of-Living Crisis’, released last week, the IMF cautioned that the combined impacts ofinflation, the war-induced food and energy crises, and dramatically higher interest rates were threatening financial market stability and driving the world to the brink of recession. With the cost-of-living crisis ‘tightening financial conditions in most regions’, the outlook deduced that global economic activity is ‘experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades.’  With global inflation forecast to increase from 4.7% last year to 8.8% this year, declining to 6.5% next year, the outlook suggests that in order to restore price stability, monetary policy should stay the course and fiscal policy should aim ‘to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance.’

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 October 2022)