Economic Review – December 2022

Bank Rate raised again

In mid-December, the Bank of England (BoE) announced another hike in its benchmark interest rate and warned that further increases are likely in order to sustainably return inflation to target level.

Following its latest meeting which concluded on 14 December, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 6-3 majority to raise Bank Rate by 0.5 percentage points to 3.5%. This was the ninth consecutive increase sanctioned by the MPC over the past 12-month period and took rates to their highest level since autumn 2008.

One member of the committee did vote for a more significant rise, preferring to increase Bank Rate by 0.75 percentage points in order to tackle what she viewed as heightened inflation risks since the previous meeting held in early November. The two other dissenting voices, however, each said it was now time to halt rate rises entirely, arguing that earlier policy decisions were “more than sufficient” to get inflation back to target.

While this difference in opinion does show that individual members of the committee are likely to hold differing views on the future path of interest rates, the minutes of the meeting did suggest further monetary tightening is likely. Specifically, they said, ‘The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response.’

In conclusion, the minutes stated, ‘The majority of the Committee judges that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target.’ The next MPC meeting is scheduled to take place early next month with the interest rate announcement due to be made on Thursday 2 February.

Jobs market shows signs of cooling

While the latest batch of labour market statistics suggest the jobs market may be starting to soften, they also show both vacancies and the number of people classed as economically inactive remain at historically high levels.

Figures released last month by the Office for National Statistics (ONS) revealed that the unemployment rate rose to 3.7% between August and October, up from 3.6% in the previous three-month period. The release also reported a drop in the number of job vacancies, which fell by 65,000 across the September–November period, the fifth consecutive decline for this measure.

Commenting on the data, ONS Head of Economic Statistics Sam Beckett suggested the fall in vacancies was a sign that the jobs market “could be starting to soften a little.” Ms Beckett went on to say that some businesses “were starting to pull some of their vacancies because they are reducing activity”,although she alsonoted that vacancies remain at historically high levels, with almost 1.2 million unfilled roles.

The latest release also reported a decline in the proportion of 16 to 64-year-olds who are neither in employment nor looking for work, with the economic inactivity rate falling to 21.5% between August and October, 0.2 percentage points lower than the previous three-month period. This reduction was most notable among older people, suggesting cost-of-living pressures may be prompting some to rethink early retirement plans.

Despite this fall, the inactivity rate remains significantly higher than before the pandemic, with over 560,000 more people now classed as economically inactive. As a result, employers continue to face recruitment challenges and, according to a report in The Times, this has led the government to consider plans to coax older people back into the workforce, with suggestions that a public information campaign focusing on the over-50s could air in the spring.

Markets (Data compiled by TOMD)

Major global indices closed December in negative territory, rounding off a challenging year, impacted by the war in Ukraine, rising inflation, higher interest rates and recessionary concerns.

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 lost 0.81% on the last trading day of the year, to close at 7,451.74, a modest gain of 0.91% for 2022 as a whole. 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 on 18,853.00, while the FTSE AIM closed on 831.33, a loss of over 31% in the year.

In the US, the Dow closed the year registering its biggest annual loss since the 2008 financial crisis. The Federal Reserves’ quickest succession of rate hikes in forty years taking their toll on markets. The Dow closed the year down around 8.78% on 33,147.25, while the NASDAQ closed the year down over 33% on 10,466.48. Meanwhile, the Nikkei 225 ended the year on 26,094.50, down over 9%, and the Euro Stoxx 50 closed the year over 11% lower on 3,793.62.

On the foreign exchanges, the euro closed the year at €1.12 against sterling. The US dollar closed the year at $1.20 against sterling and at $1.07 against the euro.

Brent crude closed the year trading at around $84 a barrel, an annual gain of over 8%. At the end of December, oil prices were negatively impacted as the US and UK became the latest countries to impose restrictions on travellers from China amid fears over surging COVID infection numbers. In addition, fears of recessions around the world look set to impact oil demand and prices into 2023. Gold is trading at around $1,813 a troy ounce, a small annual loss of around 0.43%.

UK economy rebounds in October

Although official growth statistics released last month did reveal an expansion in output during October, survey evidence still suggests the UK economy is likely to have already entered recession.

According to the latest gross domestic product figures the economy grew by 0.5% in October compared to the previous month. This rebound, however, came after September’s output was negatively impacted by the additional bank holiday for Queen Elizabeth’s funeral, which resulted in reduced trading hours for many businesses.

Despite October’s bounce-back, most analysts still expect the economy to have contracted during the fourth quarter as a whole. With third quarter data revisions showing the economy shrank by 0.3% in the three months to September, if output does fall across the final quarter of the year, it will be a second successive quarterly contraction and thereby meet the technical definition of a recession.

Survey data does suggest the economy is likely to have shrunk during the final two months of the year. The headline reading of S&P Global’s Purchasing Managers’ Index, for instance, came in at 48.2 in November while December’s preliminary reading was 49.0; any value below 50 represents economic contraction with these figures pointing to a fourth quarter decline of 0.3%.

Inflation rate eases slightly

Official consumer price statistics show the UK headline rate of inflation dipped in November although the latest figure does remain more than five times above the BoE’s 2% target level.

Data released last month by ONS revealed that the Consumer Prices Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – stood at 10.7% in November. This was down from the previous month’s figure of 11.1% and represents a sharper fall than had been predicted in a Reuters poll of economists.

ONS said the largest downward contributions came from motor fuels, with prices easing from previous record highs, and second-hand cars. These dips, however, were partially offset by a further rise in price levels at restaurants, cafes and pubs, as well as continuing growth in food prices which increased by a 45-year high of 16.5%.

While the latest data shows the cost of living is still rising at its fastest pace in 40 years, it has raised hopes that the surge in prices may now have peaked. Although analysts expect inflation to remain at relatively elevated levels, November’s dip is forecast to be followed by further declines over the coming months.

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 – December 2022

Demand drops amid economic uncertainty

Activity is weakening across the sales market, according to the latest UK Residential Survey from the Royal Institute of Chartered Surveyors (RICS), which points to a challenging year ahead.

The headline net balance for new buyer enquiries was -38% in November, a seventh successive negative monthly reading. Similarly, new sales agreed fell by 12% between October and November, according to TwentyCI, settling at 17% below the 2017-2019 average for the month.

Worsening buyer sentiment is one of several negative indicators in a challenging macroeconomic climate, the survey shows. New instructions coming onto the sales market is still in negative territory, with the RICS survey reporting a net balance of -9% at the aggregate level.

House prices are in decline too – a net balance of -25% of respondents have seen a house price fall at the national level, which rises to -61% for those who foresee a further drop in the coming year. Buyers are ‘sitting on the fence’, one respondent surmised.

Government falling short of affordable homes target  

A government programme to build more affordable housing in England is a long way short of its target, a report by the Public Accounts Committee has revealed.

The report states that the government is likely to deliver 32,000 fewer homes than the aims of its 2016 and 2021 affordable homes building programmes. The Department for Levelling Up, Housing and Communities has already downgraded its forecast for the 2021 programme from 180,000 to 157,000 new homes.

The biggest shortfalls are in rural areas, where housing waiting lists stretch to a quarter of a million people, according to the Country Land and Business Association.

Chair of the Committee, Dame Meg Hillier MP, commented, “Many people in high-cost areas simply can’t afford to rent privately or buy their own home and there’s a desperate need for affordable, secure rented homes… The human cost of inaction is already affecting thousands of households.”

Mortgage support for borrowers set out

The Financial Conduct Authority (FCA) has published guidance aimed at helping people who are struggling to keep up with mortgage repayments following a meeting with Chancellor Jeremy Hunt and bank chief executives on 7 December.

The guidance outlines the flexibility lenders can show to support those who have missed monthly payments, with options including an extension to the mortgage term and reduced payments for a temporary period.

Mr Hunt urged lenders to show flexibility amid the cost-of-living difficulties that many are facing. He said, “We expect every lender to live up to their responsibilities and support any mortgage borrowers who are finding it tough right now.”

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

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 Market Review – December 2022

Stability and optimism for commercial property

Average prime yields stabilised in November, according to the latest Market in Minutes report from Savills, which also pointed to an optimistic outlook for 2023.

The number of sectors seeing rising yields halved in a month, the report noted, though some sectors, including shopping centres and City of London offices are still predicted to see some outward yield shifts.

Commercial investment volumes moved above £50bn in November, a milestone that leaves volumes only 7% below the annual total achieved in 2019. The investment market has surprised on the upside since the middle of 2022; the alternative sector, was largely to thank, making up over a third of this investment.

The report’s optimism stems, in part from the finding that four of the ‘Big Six’ markets are projected to achieve rental growth next year. Bristol, Birmingham and Manchester will all have prime rents in excess of £40 per sq. ft by the end of 2023, Savills suggests.

Slowdown in Scotland

Scottish commercial property saw a dramatic slowdown in Q3 2022, according to Colliers, with investment plunging to just £200m.

The retail sector saw a total of £70m invested, while office investment volumes fell to just £40m, the weakest quarterly figure since Q2 2020. The industrial sector also experienced a slowdown, with just £20m transacted across three deals.

Despite the lacklustre quarter, however, the report notes that investment volumes for the year are now £1.7bn, 15% ahead of the corresponding 2021 figure.

Oliver Kolodseike, Research Director at Colliers, commented, “Scotland isn’t immune to the wider economic challenges that are sweeping the UK and as such, we are seeing the Scottish commercial property market find itself in the middle of a re-pricing.”

‘Once in a generation moment’ for Oxford Street

The diversification of Oxford Street will be a ‘generational change’, according to Savills, with 1.32m sq. ft of new office schemes proposed for delivery in the next five years.

The conversion of former retail space into offices is expected to account for 960,000 sq. ft of the new office space. Key schemes currently include Sirosa’s 163,000 sq. ft at Emporium, previously a House of Fraser store, and an 80,000 sq. ft conversion of a former Next store at The Ribbon, due to be delivered by M&G in 2024.

The strong amenity and cultural offerings are big draws for Oxford Street, the report notes, as is its accessibility, which was further boosted this year by the opening of the new Bond Street Elizabeth Line station.

Andrew Wedderspoon, Director in the West End office agency team at Savills, commented, “While the area has been hard to imagine as a genuine office sub-market until now, the sheer volume of space available for conversion is a once in a generation moment to transform the street and attract those larger occupiers who may otherwise be pushed out of the West End due to a lack of opportunity.”

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

“We’ve seen possibly this week, the first glimmer that (inflation) is not only beginning to come down, but it was a little bit below where we thought it would be”

At the Monetary Policy Committees’ (MPCs’) December meeting, members voted by a majority of six to three to increase Bank Rate from 3% to 3.5%. The ninth consecutive hike, rates are now at their highest level for 14 years. With inflationary pressures persisting, the MPC said they ‘will respond forcefully as necessary.’

Last week, the Office for National Statistics (ONS) latest data shows the Consumer Prices Index (CPI) rose by 10.7% in the 12 months to November 2022, down from 11.1% in October. The easing in the annual inflation rate in November reflected price changes in motor fuels and second-hand cars. There were also downward effects from tobacco, accommodation services, clothing and footwear, and games, toys and hobbies.

Bank of England Governor Andrew Bailey said there were signs inflation was now beginning to ease from its 41-year high, but that the Bank still needed to raise rates to offset pressures from a tight labour market, “We’ve seen possibly this week, the first glimmer that (inflation) is not only beginning to come down, but it was a little bit below where we thought it would be. That’s obviously very good news. But there’s a long way to go.”

The next MPC meeting concludes on 2 February 2023.

US and Euro Area follow suit

Also last week, in the US the Federal Reserve rate setting committee members voted unanimously to increase its key benchmark rate by 0.5 percentage points to make the target range 4.25% to 4.5% – the highest it has been in 15 years. Along with the increase came an indication that officials expect to keep rates higher through next year, with no reductions until 2024. The US Consumer Price Index rose just 0.1% in November, a smaller increase than expected as the 12-month rate dropped to 7.1%. Fed Chair Jerome Powell said the recent news was welcome, but he still sees services inflation as too high, adding, “There’s an expectation really that the services inflation will not move down so quickly, so we’ll have to stay at it… We may have to raise rates higher to get where we want to go.”

The European Central Bank (ECB) opted for a smaller rate rise in December, taking its key rate from 1.5% to 2%. The ECB said it would need to raise rates ‘significantly’ further in order to temper inflation. From March 2023 the ECB expect to begin reducing its balance sheet by €15bn per month on average until the end of Q2 2023. The central bank said it expects inflation to remain above its 2% target until 2025, with average inflation of 8.4% in 2022, 6.3% in 2023 and 3.4% in 2024. The ECB expects recession in the region to be ‘relatively short-lived and shallow.’

Scottish Budget key points

On 15 December, Deputy First Minister John Swinney outlined the Scottish government’s tax and spending plans for the year ahead, announcing increases in Income Tax for everyone earning more than £43,662. From April 2023 the Top Rate threshold will be reduced from £150,000 to £125,140 and the Higher and Top Rates of tax will rise to 42% and 47% respectively.

Spring Budget 2023
On Monday, Chancellor Jeremy Hunt confirmed he will set out a Spring Budget on 15 March 2023. In a written statement he outlined that he has asked the Office for Budget Responsibility (OBR) to prepare a forecast to accompany the Budget. This forecast, along with the one prepared for the Autumn Statement in November, will fulfil the obligation for the OBR to produce two forecasts every financial year. The Spring Budget will allow the Chancellor to reassess the energy market and the effect of interest rate increases.

Retailers rely on festive rush

Retailers are hoping for a Christmas boost following disappointing November sales figures. On Friday, the Office for National Statistics (ONS) reported that retail sales volumes are estimated to have fallen by 0.4% in November. Helen Dickinson, Chief Executive of the British Retail Consortium, said, “Black Friday provided a small boost to retailers, but there are signs that many consumers are holding off Christmas spending until the last moment.”

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 (21 December 2022)

Looking to retire early? There’s lots to think about

It is the dream of many to retire early. Indeed, 270,000 people in their 50s and 60s left the UK workforce during the COVID-19 pandemic, according to the Institute for Fiscal Studies.

Concerns about retirement poverty

However, two thirds of people aged 50–70 who quit work or lost their job during the pandemic left the workforce earlier than expected1. This means that they might not have the funds they need for a longer- than-anticipated retirement, sparking concerns that they could face poverty later in life. Of particular concern is the financial impact of accessing your pension too early, with research2 showing that doing so before reaching State Pension age could reduce your pot by 59% on average.

Compounding the issue is the fact that those who now want to re-enter the workforce are finding it difficult to get rehired. According to research from the Centre for Ageing Better, unemployed over-50s are twice as likely to be out of work for 12 months or more, than their younger counterparts.

Many factors to consider

Early retirement may be enticing, but it certainly bears thinking about. Before acting, it is always a good idea to take financial advice and think carefully about the following factors:

•             Do you know how much you’ll need to live comfortably in retirement?

•             If so, do you have enough in your pension pot for the lifestyle you want?

•             Do you have savings or any other source of income?

•             Do you still have a mortgage or any other outstanding debt you are still liable for?

•             Could working for just a few more years offer you valuable financial security?

Whatever your goals for retirement, we’re here to help you get into the best possible financial position for later life.

1ONS, 2022

2Canada Life, 2022

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.

On the rise – protection insurance payouts

Claims paid out under protection insurance totalled £6.8bn in 20211, a second consecutive yearly high, with more than £18.6m paid out every day in life insurance, income protection and critical illness claims.

Last year was the third year in a row where the overall average individual payout increased, rising by 9% year-on-year to reach £14,994. For term assurance, the average claim payment was £61,944 and the average critical illness claim payment was £67,500.

Last year, 98% of individual and group claims were paid. However, ‘non-disclosure’ was cited as the main reason for the 2% of rejected claims. This is when a customer fails to provide information about something that might have influenced the insurer’s decision to provide cover or the price of that cover.

More than a number

Protection policies can help give you peace of mind by making sure you can meet financial commitments and knowing that your loved ones will not face hardship. Behind the headline facts are millions of families given support when they needed it most.

1ABI and GRiD, 2022

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

Anyone can fall victim in an ‘epidemic of fraud’

The latest annual fraud report published by UK Finance stresses the need for an urgent response to ‘the epidemic of fraud’ that the UK is currently facing.

The report reveals that £1.3bn was stolen by criminals through authorised and unauthorised fraud in 2021. In total, 56% of UK adults1 have received a suspicious communication or known someone who has in the last year, which equates to an estimated 29.6 million UK adults being affected by scams last year.

Preying on the elderly

Reportedly, scam victims aged over 70 lost about £977m2 in total between April 2019 and 2022. Official figures fail to capture the true extent of such fraud because these crimes remain under-reported, especially among elderly people who live alone.

Cost of living

During the pandemic, criminals exploited victims’ fears over coronavirus. Now, the cost-of-living crisis has become a new line of attack. The UK Finance report showed that authorised push payment (APP) fraud, where victims are tricked into transferring money into scammers’ accounts, leapt by 40% last year. Such techniques are now being used to prey on people’s financial preoccupations.

Tech effect

Everyone, young or old, can be a victim of fraud. Indeed, under-25s are more likely to be defrauded on the phone than older generations. One study3 found the youngest cohort 75% more likely to have been scammed this way than those over fifty-five.

Scammers are also seeing a growing opportunity in cryptocurrencies, which are not regulated by the UK’s Financial Conduct Authority. In the year to May 2022, crypto frauds soared 58% to £226m, new research4 has found.

Don’t suffer in silence

Anyone can be a victim of fraud. We can help you protect your finances.

1Canada Life, 2022,

2Action Fraud, 2022,

3Truecaller, 2022

4NordVPN, 2022

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

“Our reforms deliver smarter regulation of financial services that will unlock growth and opportunity”

Last Friday, as temperatures plummeted, Chancellor Jeremy Hunt announced a package of over thirty UK financial services regulatory reforms, dubbed the ‘Edinburgh Reforms,’ which the government intends will ‘unlock investment and turbocharge growth in towns and cities across the UK.’ A considerable overhaul, the effects will be far-reaching, with the financial services sector contributing £216bn a year to the UK economy.

Speaking at an industry roundtable in Edinburgh, he outlined a series of measures to ‘seize the benefits of Brexit’ establishing the government’s approach to reversing what they regard as ‘burdensome’ elements of EU law. 

Measures include establishing new rules governing how senior finance executives are hired and sanctioned, and a commitment to make legislative progress on replacing the rules governing insurers balance sheets, expected to unlock over £100bn of private investment.

Mr Hunt commented, “We are committed to securing the UK’s status as one of the most open, dynamic and competitive financial services hubs in the world.”

Andrew Griffith, Economic Secretary to the Treasury added, “The UK is a financial services superpower – and we have long benefited from, and are committed to, high quality regulatory standards… Our reforms deliver smarter regulation of financial services that will unlock growth and opportunity in towns and cities across the UK.”

GDP update

As the country ground to a halt, grappling with a combination of heavy snowfall and strike action, news came on Monday that the UK economy contracted by 0.3% in the three months to October as soaring prices took their toll on households and businesses. Over the period, economic activity slowed across all primary sectors including services, construction and production. However, in October, GDP is estimated to have grown by 0.5% following a fall of 0.6% in September. Growth in October was driven by the services sector.

Household confidence on the ropes

The recently released Q3 Household Finance Review from UK Finance has revealed that consumer confidence has continued to fall below current record lows, due to a combination of factors including rising energy prices and inflation, the ongoing conflict in Ukraine, plus the fallout from September’s Growth Plan. Confidence regarding the general economic situation reached an all-time low of -62. Key points from Q3 included:

  • Although inflation masked weaker activity in some sectors, spending remained relatively strong overall, with card spending defying weak consumer sentiment for both the value and number of transactions
  • Personal loan borrowing to fund larger purchases subsided in the quarter, following strong growth during H1 2022
  • House purchase activity aligned with pre-pandemic levels during Q3, but weakness is anticipated as the labour market softens into 2023 and affordability issues come to the fore
  • Refinancing held firm in Q3 due to a strong maturity schedule, but it is strongly anticipated that inflation and interest rate rises will prove challenging for the 1.8 million fixed rate loans set to mature in 2023.

“A new era for UK coinage”

On Thursday, almost five million new 50p coins bearing the image of King Charles III entered circulation via Post Offices across the UK this month. It is expected that a total of 9.6 million of the coins will enter circulation in line with demand. Rebecca Morgan, Director of Collector Services at The Royal Mint, spoke on the launch of the new coin last week, “Today marks a new era for UK coinage, with the effigy of King Charles III appearing on 50ps in circulation… We anticipate a new generation of coin collectors emerging, with people keeping a close eye on their change to try and spot a new 50p that bears the portrait of our new King.”

Markets

At the tail end of last week, UK stocks made some modest gains on the back of the Chancellor’s reforms to overhaul financial services regulations, with UK insurers, banks and asset managers among the companies lifting the FTSE 100 higher. Enter the new week and London’s markets sustained losses on Monday after falls on the back of a sharp rise in natural gas prices, but on Tuesday, the FTSE 100 advanced 0.7% as gains in energy stocks outpaced weakness in consumer staples and news of slowing US inflation filtered through.

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 (14 December 2022)

Equity release increase driven by cost-of-living pressures

In recent years, equity release has become an increasingly popular way for older homeowners to unlock cash tied up in their properties.

Equity release products enable homeowners over the age of 55 to access equity locked up in their homes while still being able to live in their property.

New research suggests that many homeowners are now choosing to do so to help them with the rising cost of living.

According to analysis1, 14% of equity release applications in Q1 2022 were made by customers looking to bolster their everyday living costs. A further 12% were looking to unlock cash in order to consolidate unsecured debts. Meanwhile, over a third (36%) wanted to use equity release to clear their outstanding mortgage.

Equity release use hits record highs

Q2 2022 saw equity release lending figures hit record highs, reaching £1.6bn – a 26% increase year-on-year. This marks the fourth consecutive quarter of near record figures, according to the Equity Release Council (ERC)2 and equates to nearly 12,500 new plans being taken out by over-55s between April and June 2022 alone.

ERC Chair David Burrowes commented, “Raising awareness of how modern equity release products work alongside other financial solutions is essential so people who are asset-rich but cash-poor can benefit from the wealth they have built up over their lifetimes and also support those around them.”

Talk to us

Equity release isn’t right for everyone, it can prove an expensive option, can be inflexible and may impact entitlement to benefits. It is vital to take financial advice to ensure it is a suitable option for your individual circumstances. To find out more about your options, please do get in touch.

1Canada Life, 2022

2Equity Release Council, 2022

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. Think carefully before securing other debts against your home. Equity released from your home will be secured against it.

Economic Review – November 2022

OBR forecasts long but shallow recession

Updated projections from the Office for Budget Responsibility (OBR) suggest the UK is facing a long but relatively shallow recession which will see households hit by a record drop in living standards.

Chancellor Jeremy Hunt unveiled the independent fiscal watchdog’s latest forecasts during his Autumn Statement delivered to the House of Commons on 17 November. Mr Hunt said the country was facing “unprecedented global headwinds” before announcing the OBR’s new figures which show the UK entered recession during the third quarter of this year.

The updated predictions suggest the UK economy will expand by 4.2% across the whole of 2022, but then shrink by 1.4% next year before returning to growth in 2024. This implies that the downturn will be relatively shallow, if long by historic standards.

Although the recession is forecast to be comparatively shallow for the economy as a whole, the household sector is expected to be hit particularly hard due to a combination of factors including soaring energy and food prices, rising interest rates and higher taxes. As a result, the OBR figures suggest households are facing the largest fall in living standards on record.

Prior to the Chancellor’s Statement, the latest gross domestic product figures from the Office for National Statistics (ONS) had revealed that the UK economy shrank in the three months to September. ONS said the economy contracted by 0.2% across the third quarter of the year driven by a decline in manufacturing which was evident ‘across most industries.’

Survey data also suggests the economy continued to shrink during the first two months of the fourth quarter. The headline reading of S&P Global’s Purchasing Managers’ Index, for instance, sank to a 21-month low of 48.2 in October and November’s preliminary reading rose only marginally to 48.3. Any value under 50 represents economic contraction.

Bank Rate hiked sharply

Last month, the Bank of England (BoE) sanctioned a further increase in its benchmark interest rate and said more rises were likely but not to levels that had been priced in by financial markets.

At a meeting which concluded on 2 November, the BoE’s nine-member Monetary Policy Committee (MPC) voted to raise Bank Rate by 0.75 percentage points to 3.0%. This was the eighth consecutive increase since December and the largest rate hike since 1989. In addition, minutes to the meeting stated that a majority of MPC members believe ‘further increases in Bank Rate may be required for a sustainable return of inflation to target.’

However, the minutes also pointed out that the peak in rates is expected to be lower than markets had been anticipating. Indeed, in an unusually blunt message delivered when announcing the rate decision, Bank Governor Andrew Bailey said, “We can’t make promises about future interest rates but based on where we stand today, we think Bank Rate will have to go up by less than currently priced in financial markets.”

The next interest rate announcement is due on 15 December and economists expect MPC members to sanction another increase in rates – in a recent Reuters poll, more than three-quarters of all economists surveyed predicted rates will rise by 0.5 percentage points, with all of the other respondents predicting a 0.75 percentage point increase.

Comments made during the last few weeks by a number of MPC members have also reaffirmed the need for further rises in order to return inflation to the central bank’s 2% target. Some members, however, including BoE Deputy Governor Dave Ramsden, have begun to mention the possibility of rate cuts at some point in the future, should economic conditions diverge from current expectations and “persistence in inflation stops being a concern.”  

Markets (Data compiled by TOMD)

Global indices largely closed November in positive territory. In the UK the FTSE 100 advanced, ending the month at its highest closing level for five months, supported by commodity and energy stocks. The blue-chip index closed the month up 6.74% to 7,573.05, while the mid-cap FTSE 250 gained 7.12% and the FTSE AIM ended the month up 5.27%.

On Wall Street, markets closed sharply higher following Federal Reserve Chair Jerome Powell’s speech on 30 November, indicating the central bank might scale back the pace of its interest rate hikes as soon as December. The Dow closed the month up 5.67% on 34,589.77, while the Nasdaq closed November on 11,468.00, up 4.37%.

At the end of November, European Central Bank President Christine Lagarde said that a more hawkish line on rising inflation was needed on the continent, suggesting that more rate hikes are likely in the coming months. The Euro Stoxx 50 closed the month up 9.60%. In Japan, the Nikkei 225 closed November up 1.38%.

On the foreign exchanges, the euro closed at €1.15 against sterling. The US dollar closed the month at $1.19 against sterling and at $1.03 against the euro.

Brent Crude closed the month trading at around $86 a barrel, a loss of 5.32%. Signs of an oversupplied market earlier on in the month pushed prices lower but it recovered in recent days as discussions on a Russian price cap continue and government data showed US stockpiles plunging, while traders accelerated buying amid optimism that China will soon loosen restrictions. Gold is currently trading at around $1,753 a troy ounce, a gain of 6.99% on the month.

Record pay growth still lags inflation

While the latest earnings statistics revealed regular pay is now rising at a record level, the data also showed wage growth is still failing to keep up with the rapidly rising cost of living.

ONS figures released last month showed average weekly earnings excluding bonuses rose at an annual rate of 5.7% in the three months to September. This was the strongest recorded growth in regular pay witnessed outside of the pandemic when the data was distorted by workers returning from furlough.

However, although the rate of pay growth is currently high by historic standards, wage increases are still being outpaced by spiralling inflation – in real terms, regular pay actually fell by 2.7% over the year to September. This represents a slightly smaller decline than the record fall recorded three months ago but is still among the largest falls since comparable records began in 2001.

The latest official inflation statistics also revealed a further jump in price growth during October, with soaring energy bills and food prices pushing the annual figure to a 41-year high. The headline rate of Consumer Price Inflation rose to 11.1% in the 12 months to October, a big jump from September’s rate of 10.1%.

Retail sales rise in October

Official data shows that retail sales staged a partial recovery in October although more recent survey evidence suggests retailers remain relatively pessimistic about future trading prospects.

The latest ONS retail sales statistics revealed that total sales volumes rose by 0.6% in October, following a 1.5% decline during the previous month when shops closed for the Queen’s funeral. Despite this partial rebound, ONS said the broader picture was that sales are still on a downward trend that has been evident since summer 2021 and that volumes remain below pre-pandemic levels.

Survey evidence also highlights the current difficulties facing the retail sector, with the latest Distributive Trades Survey from the CBI showing the net balance of retailers reporting year-on-year sales growth falling from +18% in October to -19% in November. A similar proportion also said they expect sales to fall this month suggesting most firms anticipate little festive cheer this December.

Commenting on the findings, CBI Principal Economist Martin Sartorius said, “It’s not surprising that retailers are feeling the chill as the UK continues to be buffeted by economic headwinds. Sales volumes fell at a firm pace in the year to November, and retailers remain notably downbeat about their future business prospects.”

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