News in Review

“The American economy – powered by working families – continues to be resilient in the face of historic challenges”

The US economy contracted in Q1 as surging inflation and supply disruptions weighed on output. A slower pace of inventory investment by businesses also weighed on the growth of the world’s largest economy, as did fading government stimulus. The 1.4% decline in gross domestic product in the first quarter marked a sharp turnaround from the 6.9% annual growth rate recorded in the final quarter of last year and is considerably lower than the 1% growth widely estimated by economists.

The figure was the first contraction since the height of the pandemic in 2020. One of the US economy’s main drivers in Q1 was consumer spending, increasing by 2.7%, a slight acceleration from the end of 2020. However, high inflation is eroding household purchasing power, as consumer prices rose by 8.5% in March, a forty-year high.

Following the unexpected negative data, President Biden insisted the US economy remained strong, “The American economy – powered by working families – continues to be resilient in the face of historic challenges. Last quarter, consumer spending, business investment, and residential investment increased at strong rates. The number of Americans on unemployment insurance remains at the lowest level since 1970.”

When the Federal Reserve next meet on 4 May, there are expectations that the decision will be made to raise policy rate by fifty basis points as the tight labour market and surging inflation weigh heavily on the economy.

Eurozone inflation edges higher

Meanwhile, closer to home, data released last week showed eurozone inflation reached a new record high in April. For the nineteen countries in the eurozone, inflation surged to 7.5%, adding pressure on the European Central Bank (ECB) to tighten policy. Escalating fuel prices weighed on the region’s economic recovery. The April figure tops the old record of 7.4% recorded in the previous month. ECB President Christine Lagarde reiterated that the eurozone would adopt a more “gradual” approach than the Federal Reserve to stamping out inflation. Despite this, there are expectations that the ECB may raise rates for the first time in a decade as soon as July.

UK government borrowing halves

Data from the Office for National Statistics (ONS) shows that during the last financial year government borrowing more than halved versus the same period a year earlier, when the UK was in the middle of pandemic restrictions. The £151.8bn borrowed in the financial year ending March 2022, was under half the £317.6bn borrowed in 2020-21. Since pandemic schemes, including the Job Retention Scheme ended, the government has clearly borrowed less. In addition, the government received stronger than expected revenues from taxes, with receipts at £619.9bn for the fiscal year, an increase of £94.3bn. In March, borrowing totalled £18.1bn, well above pre-pandemic levels and the second-highest amount for the month since records began in 1993, but still £8.8bn less than the amount borrowed in March 2021.

MPC – rates on the rise?

With the next Monetary Policy Committee (MPC) meeting taking place on 5 May, the decision on Base Rate, voted by the nine-member committee, is imminent. The rate has been rising incrementally over the last few months and following three consecutive hikes, its current level is 0.75%. As the Bank of England takes action against soaring inflation, a vote to increase the rate again by 0.25% would see it reach levels not seen since 2009.

House prices continue their ascent

The latest Nationwide House Price Index has revealed that average house price growth has slowed in the year to April to 12.1%, from 14.3% recorded in March. Despite the reduction in growth, it’s still the eleventh time in the last twelve months that the rate of annual growth has been in double digits, putting the average value of a UK property at £267,620. Nationwide’s Chief Economist Robert Gardner commented on the data, “Housing market activity has remained solid with mortgage approvals continuing to run above pre-COVID levels. Demand is being supported by robust labour market conditions, where employment growth has remained strong, and the unemployment rate has fallen back to pre-pandemic lows. With the stock of homes on the market still low, this has translated into continued upward pressure on house prices.”

He continued, “Nevertheless, it is surprising that conditions have remained so buoyant, given mounting pressure on household budgets which has severely dented consumer confidence.”

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.

News in Review

“Online sales were hit particularly hard due to lower levels of discretionary spending”

As expected, the latest data set from the Office for National Statistics (ONS) highlighted that consumer spending, impacted by rising costs, led to a reduction in UK retail sales throughout March. As people tightened up on non-essential spending, retail sales volumes fell by 1.4% in the month following a decline of 0.5% in February. This fall significantly lags the 0.3% decline expected by economists.

The biggest contributor to the reduction came from online retail, with sales volumes declining nearly 8% during March, following a fall of almost 7% in February. The reduction was led by sales of food, clothing and footwear. Fuel sales also dropped as people cut travel amid record petrol and diesel prices, with 39% of people cutting back on non-essential journeys in private vehicles. ONS Director of Economic Statistics, Darren Morgan commented on the data, “Online sales were hit particularly hard due to lower levels of discretionary spending. Fuel sales also fell substantially, with evidence suggesting some people reduced non-essential journeys, following record high petrol prices, while food sales continued to fall, dropping for the fifth consecutive month.”

Consumer confidence fell in April for the fifth straight month to -38, the lowest rating since the height of the financial crisis 14 years ago. The recent GfK survey highlights people’s weakening confidence in the economy and in their personal finances. Joe Staton, GfK’s Client Strategy Director commented, “This is dire news for consumer confidence and with little prospect of any economic relief on the horizon we can only forecast further falls in the index for the year ahead.”

Cancel the sub

As consumers tighten their belts, research from Kantar suggests that during Q1, 1.51 million subscription services were cancelled as British households proactively looked for ways to reduce their outgoings. With 58% of UK homes having at least one paid streaming service such as Amazon Prime, Netflix and Disney+, the research concluded that the proportion of consumers planning to cancel subscriptions had risen to its highest ever level at 38%.

PM trade visit to India

Boris Johnson visited India last week in an effort to deepen trade ties with the country. Meeting the Prime Minister of India Shri Narendra Modi in Delhi for the first time since last autumn, Mr Johnson vowed to push towards agreeing a post-Brexit trade deal between India and the UK by late October. After the meeting, the Prime Minister said that deepening trade relations with India was a priority and that the country was “an incredible rising power in Asia.” In a joint statement issued after the meeting, entitled ‘Towards shared security and prosperity through national resilience’ the leaders welcomed positive growth in bilateral trade, highlighting the potential to double trade by 2030.

French Election 2022

Major political news of the week came on Sunday, when Emmanuel Macron beat Marine Le Pen to win the French Presidency, becoming the first French President to be re-elected in 20 years. After a tight race, Macron won by 58.55% to 41.45%, a greater margin than expected, although the voter abstention rate was 28%, the highest in over 50 years. During his victory speech, on Champs de Mars in central Paris, Mr Macron promised to be the “President for each and every one of you.”

Markets

The weak UK sales data, fuelling concerns of slowing economic growth, weighed on European markets at the tail end of last week. After a strong start for London stocks on Tuesday, early gains were lost after a weak opening on Wall Street. The FTSE 100 closed up 0.08% at 7,386.19. US stocks closed sharply lower on Tuesday as concerns over inflation, global economic growth, a fresh surge of COVID-19 cases in China and the war in Ukraine fuelled further volatility. The Dow Jones ended the session more than 800 points lower to close at 33,240.18. 

Twitter takeover

On Monday, the board of Twitter unanimously agreed to a $44bn takeover offer from Elon Musk, following his bid in mid-April. Musk commented on the takeover, “Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it.” Subject to various approvals (stockholder, regulatory and closing conditions) the transaction is expected to close this year.

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.

Money – In the news

Savers say goodbye to £34m in LISA bonuses

During the 2020/21 tax year, HMRC reclaimed £34m in Lifetime ISA (LISA) withdrawal charges1. Although the government reduced withdrawal charges for LISAs from 25% to 20% in 2020 (to 5 April 2021) to help those who had no choice but to access their savings during the pandemic, this figure represents a threefold increase on the previous tax year (2019/20). No doubt the decision to access these savings earmarked for home purchases and retirement, was likely to have been a difficult decision for many, knowing they would be penalised on withdrawal. There have been calls on the government to reassess the withdrawal charge. We will keep you posted with any developments.

Making your money last in retirement

Research2 has found that over a third of retirees (37%) don’t think they will have enough money to last their full retirement. Nearly half of those surveyed (48%) said they plan to reduce their spending habits to support themselves in retirement, while nearly one in three (27%) expect to continue to work part time and a fifth (21%) plan to sell their property or downsize. With longevity increasing and retirement consequently lasting many more years, the need to take advice to draw up a robust financial plan has never been so important.

1FoI request, 2022

 2abrdn, Sep 2021

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.

Wealth – In the news

Dividend growth 2022 – cautious optimism

A recent report1 has revealed a dramatic rebound in UK dividends in 2021, increasing 46.1% last year to total £94.1bn. This figure was boosted by a record £16.9bn in special dividends, three times the normal level. Special dividends are non-recurring and usually larger than a typical dividend payment. For 2022, the report expects underlying growth of 5% to bring total payouts to £81bn, with banks and oil companies expected to be the main contributors. Expectations are that special dividends are likely to be much lower this year. Despite headwinds such as inflation and new COVID variants, Managing Director of Corporate Markets EMEA at Link Group Ian Stokes believes, “The recovery in UK dividends is not complete, but the easiest part of the catch up is now behind us… As the pandemic continues, it would be easy to take a knife to our expectations for dividends for the coming year. We are, however, cautiously optimistic that most sectors can deliver growth.”

Don’t risk a double tax hit on your pension

Data from the Financial Conduct Authority2 shows that the number of pension pots accessed for the first time in 2020/21 totalled 596,080; the number fully withdrawn totalled 341,404. Only 33% of consumers taking money from their pension for the first time took regulated advice. People cashing in pension pots without taking advice could be putting themselves at risk of paying more tax, and those cashing in pots in one go could pay up to 45% Income Tax on part of their withdrawal, while also losing Inheritance Tax protection.

1Link Group, 2022

 2FCA, Dec 2021

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.

Residential Property Review – April 2022

Supply shortages fail to blunt sales

Low availability is once again the key trend in the UK housing market, even as stock levels edge upwards and sales remain strong.

In March, estate agents reported a 3.5% monthly rise in the level of stock on their books, according to Zoopla. Moreover, the number of homes coming to market has exceeded new sales since January, according to TwentyCi.

The low availability of stock has not managed to stem the flow of sales; Savills report that completions in February were 17% above the 2017-19 average. Looking ahead, the number of sales agreed is also strong, about 15% higher than the 2017-19 average.

However, the imbalance between supply and demand, which has characterised the market since the pandemic, has not yet steadied, with warnings that the faint signs of new supply are unlikely to meet the required high levels of demand any time soon.

Soaring rents as Scotland catches up

Rents in Scotland rose year-on-year by 2.6% in February 2022, higher than the corresponding figures for England (2.1%) and Wales (1.4%), new market analysis by DJ Alexander Ltd has revealed.

After years of slower growth, the Scottish annual rate has outpaced the English and Welsh rises every month since July 2021. Longer term, however, Scotland still lags its UK counterparts since 2015.

A separate survey corroborates the trend. Scotland recorded the largest annual variance in the year to March 2022, according to market analysis from HomeLet. The rise of 12.9% pushed the average rent in Scotland up to £770 per month.

David Alexander, chief executive officer of DJ Alexander Scotland, commented, “The current increases in rents across Scotland reflects growing demand but is also a sign that the market is correcting itself… current increases are simply a sign of Scotland catching up.”

Housing hotspots create fierce competition

With demand still outpacing supply, many buyers are facing fierce competition in their hunt for the ideal home.

Some in-demand locations are seeing more than twice as many buyer enquiries for every property than this time last year, according to Rightmove.

Hotspots include Shirley in Solihull, where the number of enquiries about each home for sale is 143% higher than the same period last year. The town appeals to buyers owing to a high number of outstanding schools and its road links to Birmingham and Stratford.

Good transport links and excellent schools are common features across the hotspots. Jesmond, a suburb of Newcastle-Upon-Tyne, combines both, as well as many properties in conservation areas and has seen buyer enquiries shoot up by 141% compared to 2021.

Chorlton-cum-Hardy in Greater Manchester (+138%) and Balham in London (+113%) are two more hotspots with surging demand. On average, Rightmove estimates that this competition has pushed asking prices in the hotspots up by 11% in a year.

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 – April 2022

Industrial space in high demand in Q1

Elevated occupier demand has driven strong UK industrials and logistics take-up in Q1 2022, according to the latest research.

The take-up of 10.43 million sq. ft in the first quarter is double the total in the same period last year, CBRE noted. Q1 2022 saw take-up more than 36% above the long-term quarterly average, according to Savills.

Such strong demand is keeping supply critically low, Savills cautioned, with the current vacancy rate sitting at 3.12%. However, its analysts also pointed to the 21.1 million sq. ft of speculative warehouse space under construction, due for delivery in 2022 or 2023, as a sign for optimism.

Richard Sullivan of Savills commented, “There are a number of significant macro events currently impacting economies globally which are once again placing pressure on businesses to future proof their supply chain. With some predicting online activity could account for as much as 50% of retail spend, this is only set to increase demand going forward.”

Optimism returns to Aberdeen office market

Office take-up in Aberdeen has almost reached the total figure for 2021 in Q1 2022 alone, according to analysis from Knight Frank.

The commercial property consultancy found that 195,905 sq. ft of office space was transacted in The Granite City between January and March 2022, compared to around 197,194 sq. ft in the same period last year.

Notable deals during the first quarter saw Shell complete on a 100,000 sq. ft let at the Silver Fin Building and The North Sea Transition Authority – formerly the Oil and Gas Authority – take up  around 18,000 sq. ft at 1 Marischal Square.

Matt Park, Partner at Knight Frank Aberdeen, said “At the beginning of the year, we expected to exceed 200,000 sq. ft of take-up by the end of June, but we are very close to reaching that figure in just three months.”

Prime office space still hotly sought after

February take-up in London’s City office sector climbed to 546,166 sq. ft across 18 deals, according to Savills, larger than the combined value for January and February 2021.

Prime office space remains a key driver for occupiers, with 94% of the year-to-date 834,221 sq. ft take-up classed as Grade A quality. Moreover, 69% of this Grade A space was recently comprehensively refurbished or developed.

A noteworthy transaction was Aviva’s acquisition of the first to fourth floor at 80 Fenchurch Street, EC3. The insurer acquired 78,276 sq. ft on a ten-year term at £67.50/sq. ft with 27 months rent-free.

In total, the Insurance & Financial Services sector has accounted for 24% of year-to-date take-up, behind only the Professional Services sector (37%).

Serviced offices and tech shine post-pandemic

The post-pandemic office landscape has bolstered two already established trends; the value of serviced offices and growth in the tech sector.

The UK’s largest serviced office providers’ property portfolios have fallen from £25.7bn to £24.3bn in the last year, according to Boodle Hatfield, reversing the past five years’ relentless 300% growth.

Experts, however, expect big office occupiers to be drawn back to serviced offices. “The serviced office sector is leaving the pandemic in a healthy state with a consensus that a hybrid working model will see the sector continue to grow” commented David Rawlence of Boodle Hatfield.

The tech sector, meanwhile, continues to outperform the overall economy. Last year, UK tech investment recorded its best year since 2014.

Bristol, ranked third in the UK by Tech Nation’s 2021 report, provides an interesting case study. The city is gaining a reputation as one of the UK’s fastest-growing tech cities, with the sector accounting for 30% of office take-up in the last five years, according to Savills.

With Bristol’s tech sector maturing, deal sizes have already increased; the average letting is now 6,318 sq. ft, up 41% on 2017’s average. Accordingly, top rents in the sector have grown by 38% between 2016 and 2021.

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.

As life changes your mortgage should too

The cost of living has shot up in recent months, with inflation expected to reach a peak of 8.7% in Q41 and many families facing a significant hike on their annual energy bills from April.

With finances squeezed, every penny counts – so it’s important to consider all the options for streamlining your outgoings. If you’re reaching the end of your current mortgage term, taking the time to explore whether more favourable rates are available could really pay.

Paying over the odds?

If your mortgage deal has expired and you are on your lender’s Standard Variable Rate (SVR), it is likely you’ll already have been hit by recent increases to the Bank of England base rate. SVRs are typically higher than those offered by available deals and fluctuate as interest rates rise and fall. Switching to a fixed rate mortgage deal instead could both save you money and make budgeting easier, as you’ll know exactly what is going out each month.

Time for a review?

While you can switch your mortgage at any time, you may face early repayment charges (ERCs). Even if your current mortgage deal hasn’t quite expired, however, you could start the remortgaging process up to six months beforehand. Many lenders will permit you to lock into a new deal in advance, so starting early will give you the time you need to assess your available options. That’s where we can help – we can scour the market for the most suitable mortgage finance for your circumstances.

1OBR, 2022

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. Equity release may require a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration.

Pension wealth increasing

New data from the Office for National Statistics (ONS) Wealth and Assets Survey1 has revealed that the largest single component of household wealth is private pension holdings.

In the latest recorded period (April 2018 to March 2020) pensions represented 42% of aggregate wealth, up from 34% (2006-08), an increase in pension wealth of nearly £70k on average for UK households. This growth can be attributed to various factors including more households having private pensions due to auto-enrolment and rising longevity meaning pension savings have increased proportionally. Meanwhile, property wealth (minus mortgage debt) made up 36% of household wealth; financial wealth, or savings or investments, made up 13%; and physical wealth, such as cars and house contents, totalled 9%.

Underlying wealth per household for the latest recorded period was £302,500 at the median or midpoint level, which is up from £286,600 in the previous two years, and up by a fifth over the past 14 years, when adjusted for inflation. The data also shows median wealth was highest for households where a member was aged between 55 years and State Pension age; the figure of £553,400 being 25 times higher than for those aged 16-24 years of age. The wealthiest 10% of households held 43% of all the wealth, whereas the bottom 50% held only 9%.

1ONS, 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.

Renters feeling the strain

The cost-of-living crisis is likely to be felt by most Britons this year, with increases in energy and food costs and the increase in National Insurance Contributions from April. In addition, renters need to add in the rising cost of renting a property, with the average price for a new tenancy up by 8.5% from last year1.

Average rental values

Recent figures show the average cost of renting in the UK is now £1,064 per calendar month (pcm). Every region has seen an increase in costs, the greatest being in London, where rentals average £1,760pcm, 12.6% higher than January 2021; outside London the average rent is up by 6.9% year-on-year at £897pcm. In Scotland, the average rent is £747 pcm, up 9.4% from a year ago.

Commenting on the latest data, Andy Halstead, HomeLet & Let Alliance Chief Executive Officer, said, “Whilst there’s no doubt that it’s been a challenging year for many landlords, the increase in house prices has only increased the appeal of property investment. We expect to see more focus from the Government on the rental sector in 2022, through legislation like the Renters’ Reform Bill.”

1HomeLet Rental Index, 2022

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

News in Review

“We are facing a crisis on top of a crisis”

Speaking in Washington DC prior to the release of the International Monetary Fund’s (IMF) biannual World Economic Outlook this week, Managing Director Kristalina Georgieva previewed her thoughts on the global economy. Opening her speech, she declared, “To put it simply: we are facing a crisis on top of a crisis… First, the pandemic: it turned our lives and economies upside down – and it is not over… Second, the war: Russia’s invasion of Ukraine, devastating for the Ukrainian economy, is sending shockwaves throughout the globe.”

Initially focusing on the human tragedy of the invasion and displacement of over eleven million people, she went on to speak about the far-reaching consequences of the war, in particular inflation, which she described as “a clear and present danger for many countries around the world.” Given the war’s direct impact on Russia and Ukraine, and global ramifications, the IMF now projects global growth of 3.6% in 2022 and 2023, a reduction of 0.8 and 0.2 percentage points from the January forecast. Warning that the forecast was marked by ‘unusually high uncertainty,’ the outlook highlighted that further sanctions on Russian energy and a widening of the war, combined with a sharper deceleration in China and a flare-up of the pandemic, could further slow growth and intensify inflation, while rising prices could trigger social unrest and lead to the fragmentation of the world economy.

Although the UK is expected to be the joint-best performer in the G7 this year, its economic growth was downgraded to 3.7% this year from 4.7% predicted in January, with further growth downgrades predicted in 2023.

UK inflation soars

Latest inflation data released by the Office for National Statistics (ONS) last Wednesday, showed that the Consumer Prices Index (CPI) rose by 7% in the 12 months to March 2022, up from 6.2% the previous month, representing the highest rate of inflation in 30 years. Fuel had the biggest impact on the rate, with average petrol prices rising by 12.6p per litre between February and March, the largest monthly rise since records began in 1990; this compares to a 3.5p per litre rise between February and March 2021.

Senior Economist at the Resolution Foundation, Jack Leslie, commented on the latest findings, “Inflation last month reached levels not seen since the early 1990s, but it is still well below the price pressures families are currently experiencing with the recent energy price cap likely to have taken inflation up to over 8% in April. With wages not keeping pace, he warned Britain’s cost-of-living crisis was “on track to be the biggest squeeze since the mid-70s” and “will continue to worsen before it starts to ease at some point next year.”

He continued, “The sheer scale of this inflation-led squeeze on living standards makes it all the more remarkable how little support the Chancellor provided in his Spring Statement – a decision that will surely have to be revisited before the Autumn Budget.”

House price growth

According to data from real estate consultancy Knight Frank, it is expected that annual house price growth will reach 5% in 2022, before slowing considerably to just 1% in 2023. It is anticipated that the combination of more housing stock and the full force of higher mortgage rates will cause demand to slow. Head of UK Residential Research at Knight Frank, Tom Bill, commented, “We are seeing a strong start to this year, with house price growth still in double digits. In 2023, the whole calendar year will be in a different place – higher mortgage rates will start to kick in, and we’ll start to see a more balanced supply and demand situation.”

Markets

Prior to the bank holiday weekend, Europe’s markets climbed on news that the European Central Bank (ECB) intended to continue with its dovish monetary policy stance to wind down its stimulus plan. ECB President Christine Lagarde commented, “The downside risks to the growth outlook have increased substantially as a result of the war in Ukraine… We will maintain optionality, gradualism and flexibility in the conduct of our monetary policy.” Following the long weekend, the IMF forecast weighed on global market sentiment, as did China’s latest data release showing a fall in consumer spending and rising unemployment. On Tuesday, the FTSE 100 closed down 15.1 points at 7,601.28.

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.