Long COVID – a problem for your pension pot?

The pandemic has affected almost everyone in numerous different ways, whether that is financially, medically, or socially; its death toll has been appalling and overshadows everything. Fortunately, the vast majority have come through the pandemic, but the speed of recovery has been variable.

Medically, many patients have recovered well, but some have prolonged symptoms which have been diagnosed as ‘long COVID’. A corresponding picture emerges with people’s finances, as many people have lost earnings or even their jobs, but economic recovery could help restore their financial health. A minority, however, may suffer the financial equivalent of long COVID.

Insurer and pension provider Legal & General (L&G) has monitored the financial effects of COVID-19 throughout the pandemic, particularly the long-term impact on the prospective pension income of workers over 50 who are closest to retirement. In the early months of the crisis, the picture wasn’t too disturbing; last August, only 2% of this group envisaged cutting their pension contributions.

What are the numbers?

Fast-forward eight months to April this year and the L&G research revealed that some 12% of workers over 50 were paying less into their pension pots because COVID-19 had disrupted their finances. This led L&G’s number-crunchers to work out just how severe the impact could be on the retirements of those one-in-eight (about 1.7 million) 50-plus workforce members.

The message from L&G’s figures is simple, ‘A 50-year-old opting out of a workplace pension could be £50,000 worse off by the State Pension age of 67 if they never opted back in and continued working full time throughout.’ So, if you have cut back on your pension contributions during the pandemic, you should consider restarting them as soon as you can.

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

“Following the most successful vaccine programme in the world, we’re beginning the biggest catch-up programme in the history of the NHS”

On Tuesday, Boris Johnson took to the Downing Street podium, following an earlier appearance in the House of Commons, to set out the government’s intentions to “help our NHS recover from the pandemic and build back better by fixing the problems in health and social care.”

The Prime Minister continued, “For more than 70 years, we’ve lived by the principle that everyone pays for the NHS through our taxes, so it’s there for all of us when we need it… Following the most successful vaccine programme in the world, we’re beginning the biggest catch-up programme in the history of the NHS.”

A new health and social care tax will be introduced across the UK, aimed at supporting social care and tackling the health backlog caused by the pandemic, including increasing hospital capacity. From April 2022, the tax, expected to raise £12bn a year, will initially begin as a 1.25% increase in National Insurance, paid by both workers and employers. From April 2023, it will become a separate tax on earned income, calculated in the same way as National Insurance, and ring-fenced as a health and social care levy, which will appear as a separate line on payslips. Tax on share dividends is also scheduled to increase by 1.25%, in a move expected to raise £600m.

Over the next three years, £5.4bn of the sum raised will be used to support changes to the social care system. In England, from October 2023, a cap of £86,000 will be introduced on care costs over a person’s lifetime. Those with assets under £20,000 will have fully-funded care, whilst people with assets of between £20,000 and £100,000 will be entitled to care cost subsidies.

The social care cap will apply only to patients in England, but the levy is applicable across the UK. Health services in Scotland, Northern Ireland and Wales will receive an extra £2.2bn a year.

The proposals face an MP vote in the House of Commons on Wednesday.

Triple lock changes for 2022-23

Also on Tuesday, Secretary of State for Work and Pensions, Thérèse Coffey, announced suspension of the ‘wage’ element of the pension triple lock, to avoid a disproportionate rise of the State Pension following the pandemic. For the 2022-23 tax year only, the new and basic State Pension will increase by the higher of either 2.5% or the rate of inflation.

Autumn Budget and Spending Review date confirmed

On a busy day for fiscal news, on Tuesday, Chancellor Rishi Sunak confirmed that the date of the next Budget, alongside a Spending Review setting out UK government departments’ resource and capital budgets for three years, will be 27 October.

Summer property price upturn

In August, UK property prices recorded their second largest month-on-month rise in 15 years, according to the latest Nationwide House Price Index. Prices increased by 2.1% last month, with annual house price growth rising from 10.5% in July to 11.0% in August. With the average house price now heading towards £250,000, values are on average 13% higher than before the pandemic.

Expectations are that in the short-term, underlying demand is likely to remain solid. With borrowing costs low, consumer confidence has rebounded, this combined with the lack of supply in the market, suggests continued support for house prices.

Interestingly, housing energy efficiency has been found to have a modest price implication, with the report outlining that a 1.7% house price premium can be derived for an owner occupier property rated A or B, when compared to a D-rated home. Conversely, properties rated F or G have been found to attract a 3.5% discount, compared to a similar D-rated property.

Food production at risk of moving overseas

Staff shortages are causing such strain in UK food manufacturing, the British Retail Consortium (BRC) has warned, that some production may be moved to other countries entirely. Speaking last week at a special session of the UK Trade and Business Commission, Andrew Opie, Director of Food and Sustainability at the BRC, said shortages of HGV drivers and other supply chain staff, mean that the sector is currently “just on the edge of coping.”  With many factories unable to recruit sufficient levels of staff, he warned the Christmas period would be “incredibly challenging,” continuing, “Despite every effort that’s being made by food factories, we cannot recruit enough indigenous people here. They just do not want to do those roles for whatever reason.”

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.

Highest ever number of equity release products available

Equity release has become an increasingly popular option for many people, with a record number of products now available on the market.

With over 500 equity release options available to consumers1, rates have also dropped by an average of 2% in the past five years. The maximum loan to value (LTV) has held steady over this period at 49%.

Demand increases

Equity release stood up to the challenges of the pandemic, with customers taking out 19% more lifetime mortgages in H2 2020 than in the first half of the year2. Equity release is clearly still a sought-after option of accessing funding in later life.

Did you know…?

More and more people are using equity release, and yet consumers still lack basic knowledge – for example, that they can switch to a cheaper rate and potentially save thousands of pounds. The FCA does not require equity release providers to stay in touch with clients after they’ve taken out a loan, or to inform them of any opportunities to switch.

The potential savings are not insignificant, with one equity release broker saying it has saved remortgagers an average of £33,795 over a period of 10 years3.

Could you save too?

If you are an equity release customer and would like to know if switching might benefit you, then we can help. Talk to us and we can assess whether it is an option for you.

1Moneyfacts, 2021

2Equity Release Council, 2021

3Key, 2021

Equity release may require a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration.

Your personal goals matter more than Keeping up with the Joneses

Did you know that this expression about the envy of others dates all the way back to 1913, when a New York Globe comic strip ‘Keeping Up With the Joneses’ first appeared and created an enduring, meaningful expression?

Even further back, envy was evident in biblical times; the Tenth Commandment is proof of that – ‘Thou shalt not covet thy neighbour’s house… nor any thing that is thy neighbour’s.’ A TV cartoon about the neighbouring Flintstone and Rubble families is less convincing evidence of materialism in the Stone Age!

A friendly approach

More relevant to the present day can be seen from two centuries ago, when the British class system meant that much of the population led impoverished lives, with harsh industrial working conditions, poor housing and little opportunity for social mobility. That was when mutual organisations became established as co-operatives, or friendly societies, to begin improving ordinary families’ lives.

In 1820s Lancashire, a group of workers formed a sickness and benefits society that later became Shepherds Friendly Society, today a provider of long-term insurance and investment products. As a mutual, owned by its members, a much-modernised Shepherds Friendly still champions the principles of its founding members, broadly advocating thrift and a caring, sharing community.

Before the Pandemic, Shepherd’s Friendly ran a survey themed ‘Keeping up with the Joneses: Does it make us happy?’ Among the 2,000 respondents, 52% admitted comparing their finances to those of family and friends; 30% had been tempted to buy something because people they knew had done so; 9% had bought something unaffordable just to impress others.

More reassuringly, ‘achieving personal goals’ was a top-scoring response to a question about feeling successful, whereas the bottom-scorer was ‘owning expensive items’. Consider what will bring you the most happiness – maybe focusing on your own finances and being realistic about what you can really afford, without damaging your long-term financial outlook, will be the right route – rather than excessive expenditure beyond your means.

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.

Economic Review – August 2021

Strong second quarter growth

The latest gross domestic product (GDP) figures showed that the UK economy grew strongly in the second quarter, although more recent survey evidence does suggest the recovery is losing momentum.

Data published by the Office for National Statistics (ONS) revealed the economy grew by 4.8% in the second quarter of this year, fuelled by expansion in the retail, restaurant and hotel sectors. Despite this growth, the economy remains 2.2% smaller than it was immediately before the pandemic struck, although analysts do expect it to return to pre-COVID levels later this year.

Commenting on the figures, Chancellor Rishi Sunak said, “The economy is recovering very strongly, exceeding many people’s expectations. But I’m not complacent. The economy and our public finances have experienced a significant shock. It is going to take us time to fully recover from that.”

GDP growth in the month of June alone was estimated to be 1%, slightly higher than the consensus forecast in a Reuters poll of economists. More recent survey evidence, however, suggests growth may have slowed over the past couple of months.

The closely watched IHS Markit/CIPS flash composite Purchasing Managers’ Index, for instance, fell to 55.3 in August from 59.2 in July. While any value above 50 does still represent growth, this was the survey’s lowest reading since February, with respondents widely reporting constraints on business activity due to staff shortages and supply chain issues across both the manufacturing and service sectors.

Data from two Confederation of British Industry surveys also suggest the recovery may be losing momentum. The latest Industrial Trends Survey found manufacturing output growth in the three months to August eased from the previous month’s record level, amid the worst stock shortages on record, while the Service Sector Survey showed optimism among firms was ‘mixed‘ in the three months to August.

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Cost pressures transitory says BoE

Despite raising its near-term inflation forecast, the Bank of England (BoE) has again reiterated its expectation that any price pressures emerging this year are likely to prove short-lived.

At a meeting ending on 4 August, the BoE’s Monetary Policy Committee (MPC) voted unanimously to leave interest rates unchanged and to maintain its existing economic stimulus programme by a majority of seven votes to one. The minutes to the meeting also stated that ‘some modest tightening‘ of monetary policy was likely to be necessary over the three-year forecast period, preparing the way for a gradual reduction to the Bank’s substantial bond-buying programme.

Following the meeting, the BoE also provided an update on inflation prospects, warning that the annual rate was likely to hit 4% later this year. This is significantly higher than the previous forecast produced in May and double its 2% target. However, the Bank reiterated its belief that this jump will be a temporary phenomenon and that, in two years’ time, inflation will have fallen back to just over 2%.

Ironically, the latest set of price statistics, released a couple of weeks after the MPC meeting, revealed a slowdown in the rate of inflation. According to ONS data, the Consumer Prices Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – dropped to 2.0% in July. Although analysts had predicted a fall from June’s 2.5% figure, the decline was sharper than expected.

While the slowdown occurred across a broad range of goods and services, some of those comparisons reflected a significant hike in prices last July, as the economy emerged from the first lockdown. Despite July’s fall, the consensus amongst economists continues to concur with the BoE’s thinking, with inflation expected to rise again over the remainder of this year.

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Markets: (Data compiled by TOMD)

Although many major indices dipped on the last day of the month, they largely finished August in positive territory. In the US, the Dow Jones ended the month up 1.22% to close on 35,360.73 and the NASDAQ recorded a gain of 4.00%. On 31 August, US stocks slipped from record highs reached the day before, as investors grew more concerned about the surge in Delta variant cases. Prior to that, market confidence was supported by the Fed Chairman’s announcement that interest rates would not be raised immediately following the tapering of stimulus and would only be changed once inflation is under control and the US economy approaches full employment.

In the UK, on 31 August the Lloyds Bank Business Barometer revealed business confidence has risen to its highest point in over four years, as growing optimism is fuelled by expectations of stronger growth in the coming year. Travel stocks were negatively impacted at month end as the latest travel announcement saw many popular tourist destinations remain on the amber list. The FTSE 100 ended the month on 7,119.70, a gain of 1.24%. The mid-cap FTSE 250 index closed on 24,102.19, a monthly gain of 5.09%. The Junior AIM index closed on 1,292.99.

The Euro Stoxx 50 gained 2.62% in the month to end on 4,196.41. In Japan, the Nikkei has been hovering around 28,000 over the past month. Despite Japanese companies reporting positive outlooks, the spread of the Delta variant hastened concerns of an economic slowdown. The Nikkei 225 gained 2.95% in the month.

On the foreign exchanges, sterling closed the month at $1.37 against the US dollar. The euro closed at €1.16 against sterling and at $1.18 against the US dollar.

Gold is currently trading at around $1,814 a troy ounce. A weaker dollar supported gold prices at the end of the month. At least 2 million barrels a day of oil refining capacity has been affected by the passage of Hurricane Ida. With oil refineries still assessing the impact on operations, Brent Crude is currently trading at around $71 per barrel, a loss of 4.81% on the month.


Index Value
(31/08/21)		   % Movement
(since 30/07/21)
  FTSE 100 7,119.70 1.24%
  FTSE 250 24,102.19 5.09%
  FTSE AIM 1,292.99 3.35%
  EURO STOXX 50 4,196.41 2.62%
  NASDAQ Composite 15,259.24 4.00%
  DOW JONES 35,360.73 1.22%
  NIKKEI 225 28,089.54 2.95%

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COVID distortions send earnings soaring

Although official figures suggest average earnings are now rising at their highest rate since records began 20 years ago, survey data continues to tell a different story.

According to ONS data, average weekly earnings including bonuses, rose by an annual rate of 8.8% in the three months to June. However, the statistics agency has been at pains to point out that these figures are being skewed upwards by the effects of the pandemic.

ONS Deputy Statistician Jonathan Athow explained, “This time last year we had millions of people on furlough, many getting 80% of their wages, other people having their hours cut, and that pushed wages down. So, when we look at wages this year, when people have come back from furlough, it’s really been boosted by the fact that last year wages were quite low.”

As a result, interpreting the data at the moment is proving to be extremely difficult. Furthermore, industry surveys continue to report relatively little sign of strong upward pressure on wage growth. Data from XpertHR, for instance, recently suggested the median pay deal offered by major British companies in the three months to July was 2%, unchanged from increases seen across the previous few months.

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Government borrowing levels down

The latest public sector finance statistics show borrowing continues to fall from last year’s mammoth levels, although the Institute for Fiscal Studies (IFS) believes the Chancellor still faces ‘some very difficult decisions.‘

According to ONS data, government borrowing in July totalled £10.4bn. While this was the second-highest July figure ever recorded, it was nearly half the level of the same month last year and lower than analysts’ expectations. It also left the fiscal year-to-date budget deficit £26bn below the Office for Budget Responsibility’s most recent prediction, reflecting stronger receipts and lower spending than was forecast in March.

Responding to the figures, IFS Research Economist Isabel Stockton said, “Borrowing has been falling since April and falling faster than expected at the Budget.” However, she also said the figures were “still high” compared to long-run averages and suggested the Chancellor’s “coming Spending Review will still require some very difficult decisions.”

One spending pledge that looks set to be diluted is the ‘triple lock’, which guarantees State Pensions rise in line with the highest of earnings, inflation or 2.5%. Comments attributed to the Prime Minister’s spokesperson last month suggest the government now recognises “legitimate concerns about potentially artificially inflated earnings impacting the uprating of pensions.“

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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

“Strong policy support has fuelled a vigorous but uneven recovery”

With the summer holiday season drawing to a close, travel stocks were impacted last week, following the latest announcement from the Transport Secretary. Although several additions were made to the green list, some countries moved to the red list and popular holiday spots such as Spain, Greece, France and Italy remain on the amber list, a disappointment for many travellers and travel firms alike.

On Friday, global investors were heavily focused on Jerome Powell’s Jackson Hole keynote speech. During the much-anticipated symposium of central bankers, the Federal Reserve Chairman said the US Central Bank could begin to withdraw stimulus later this year, but the evolving impact of the Delta variant will be closely monitored. Despite a recent spike in inflation, he said the bank was in no rush to raise interest rates. He commented, “Strong policy support has fuelled a vigorous but uneven recovery… We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals.”

European stock markets bounced on Friday and US stocks hit record highs on Monday as the Fed’s cautious approach gave investors some reassurance that the central bank’s efforts to shore up the economy will be withdrawn gradually. US stocks slipped from record highs on Tuesday as investors concerns intensified about the surge in Delta variant cases.

UK business confidence has risen to its highest point in over four years according to the Lloyds Bank Business Barometer, which suggests growing optimism is being fuelled by expectations of stronger growth in the coming year and improvements in trading prospects.

Contactless limit on the rise

From 15 October, it has been confirmed that the contactless card limit is to rise from £45 to £100, an initiative first detailed in the Spring Budget in March. With almost two-thirds of all debit card transactions currently being made via contactless technology, regulators have said that businesses can decide whether to accept the higher limit or not. Chancellor Rishi Sunak commented, “Increasing the contactless limit will make it easier than ever to pay safely and securely. As people get back to the high street, millions of payments will be made simpler, providing a welcome boost for retailers and shoppers.” Concerns have been raised regarding the risk of fraud as the limit increases further.

July car production falls to lowest level in 65 years

In July, British car manufacturing output fell by 37.6%, the first fall since February and the worst July performance since 1956. The latest figures released by the Society of Motor Manufacturers and Traders (SMMT) emphasise how production volumes have been severely disrupted by global semiconductor shortages and staff absences caused by the ‘pingdemic.’ In July, production for the UK market declined by 38.7% while manufacturing for export also fell, down 37.4%.

Demand for alternatively fuelled models is picking up, with over a quarter (26%) of all cars made in July being alternatively fuelled, the highest share on record.

Mike Hawes, SMMT Chief Executive commented, “These figures lay bare the extremely tough conditions UK car manufacturers continue to face… The UK automotive industry is doing what it can to keep production lines going, testament to the adaptability of its workforce and manufacturing processes, but government can help by continuing the supportive COVID measures currently in place and boosting our competitiveness with a reduction in energy levies and business rates for a sector that is strategically important in delivering net zero.”

UK’s first green gilt set to mature in 2033

At least £15bn of green gilts are set to be issued in the current financial year, the proceeds of which will go towards funding environmental projects. With COP 26 on the horizon, the gilts form part of the Chancellor’s drive to assist the UK finance sector to meet its net zero ambitions. It was announced last week by the Debt Management Office, that the UK’s inaugural green gilts, set to be launched in September, will have a maturity date of 31 July 2033. Later this year a new green bond for retail investors will also go on sale. Coupon rates are set to be announced in due course.

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

“Strong policy support has fuelled a vigorous but uneven recovery”

With the summer holiday season drawing to a close, travel stocks were impacted last week, following the latest announcement from the Transport Secretary. Although several additions were made to the green list, some countries moved to the red list and popular holiday spots such as Spain, Greece, France and Italy remain on the amber list, a disappointment for many travellers and travel firms alike.

On Friday, global investors were heavily focused on Jerome Powell’s Jackson Hole keynote speech. During the much-anticipated symposium of central bankers, the Federal Reserve Chairman said the US Central Bank could begin to withdraw stimulus later this year, but the evolving impact of the Delta variant will be closely monitored. Despite a recent spike in inflation, he said the bank was in no rush to raise interest rates. He commented, “Strong policy support has fuelled a vigorous but uneven recovery… We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals.”

European stock markets bounced on Friday and US stocks hit record highs on Monday as the Fed’s cautious approach gave investors some reassurance that the central bank’s efforts to shore up the economy will be withdrawn gradually. US stocks slipped from record highs on Tuesday as investors concerns intensified about the surge in Delta variant cases.

UK business confidence has risen to its highest point in over four years according to the Lloyds Bank Business Barometer, which suggests growing optimism is being fuelled by expectations of stronger growth in the coming year and improvements in trading prospects.

Contactless limit on the rise

From 15 October, it has been confirmed that the contactless card limit is to rise from £45 to £100, an initiative first detailed in the Spring Budget in March. With almost two-thirds of all debit card transactions currently being made via contactless technology, regulators have said that businesses can decide whether to accept the higher limit or not. Chancellor Rishi Sunak commented, “Increasing the contactless limit will make it easier than ever to pay safely and securely. As people get back to the high street, millions of payments will be made simpler, providing a welcome boost for retailers and shoppers.” Concerns have been raised regarding the risk of fraud as the limit increases further.

July car production falls to lowest level in 65 years

In July, British car manufacturing output fell by 37.6%, the first fall since February and the worst July performance since 1956. The latest figures released by the Society of Motor Manufacturers and Traders (SMMT) emphasise how production volumes have been severely disrupted by global semiconductor shortages and staff absences caused by the ‘pingdemic.’ In July, production for the UK market declined by 38.7% while manufacturing for export also fell, down 37.4%.

Demand for alternatively fuelled models is picking up, with over a quarter (26%) of all cars made in July being alternatively fuelled, the highest share on record.

Mike Hawes, SMMT Chief Executive commented, “These figures lay bare the extremely tough conditions UK car manufacturers continue to face… The UK automotive industry is doing what it can to keep production lines going, testament to the adaptability of its workforce and manufacturing processes, but government can help by continuing the supportive COVID measures currently in place and boosting our competitiveness with a reduction in energy levies and business rates for a sector that is strategically important in delivering net zero.”

UK’s first green gilt set to mature in 2033

At least £15bn of green gilts are set to be issued in the current financial year, the proceeds of which will go towards funding environmental projects. With COP 26 on the horizon, the gilts form part of the Chancellor’s drive to assist the UK finance sector to meet its net zero ambitions. It was announced last week by the Debt Management Office, that the UK’s inaugural green gilts, set to be launched in September, will have a maturity date of 31 July 2033. Later this year a new green bond for retail investors will also go on sale. Coupon rates are set to be announced in due course.

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

‘It could be appropriate to start reducing the pace of asset purchases this year’

During a week in which the news agenda was dominated by Afghanistan, the US Federal Reserve warned it could start cutting back support for the economy sooner than markets had previously expected. Minutes from the Fed’s July meeting, released last Wednesday, revealed a willingness to begin tapering monthly asset purchases before the year end, ‘Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year.’

The minutes also stated that officials judged ‘uncertainty was quite high’ about the outlook and showed relatively little consensus among policymakers on a range of key issues, including whether inflation, unemployment or the pandemic, currently pose the biggest threat to economic recovery.

US markets rose on Tuesday following FDA approval of the Pfizer vaccine and ahead of Thursday’s Federal Reserve conference when Chairman Jerome Powell is expected to outline the central bank’s outlook on US economic recovery.

UK recovery losing momentum

On this side of the Atlantic, a closely monitored survey, published on Monday, found that staff and supply shortages are taking their toll on the UK’s economic recovery. The IHS Markit/CIPS flash composite Purchasing Managers’ Index (PMI) fell to a six-month low of 55.3 in August, suggesting that the post-lockdown economic rebound is losing momentum. On a more positive note, the PMI’s measure of employment growth rose to its highest ever level in August.

Inflation falls more than expected

In the last seven days, the Office for National Statistics (ONS) released a raft of economic data, including the latest inflation figures which revealed a sharper-than-expected slowdown in price growth. The Consumer Prices Index fell back to the Bank of England’s 2% target last month, following a 2.5% rise in June. Commenting on the data, ONS Deputy National Statistician, Jonathan Athow, said “Inflation fell back in July across a broad range of goods and services, including clothing, which decreased with summer sales returning after the pandemic hit the sector last year.”

Despite July’s fall, analysts still expect inflation to rise again later this year, partly due to the removal of a temporary hospitality VAT cut and a hike in energy bills. In addition, ONS producer prices data revealed that output costs increased by 4.9% in July – the fastest annual rate of growth in almost 10 years – while input costs jumped by a higher-than-expected 9.9%. Federation of Small Businesses National Chair, Mike Cherry, commented, “While consumer costs have cooled, it’s a different story for inputs, with producer prices continuing their upward march this month.”

Retail sales down

ONS data released last Friday also showed retail sales fell unexpectedly in July; sales volumes declined by 2.5% compared to June, the largest monthly decline since January. According to retailer feedback, a combination of bad weather and England’s Euro 2020 progress kept shoppers at home, although analysts also blamed a rise in the number of COVID cases which forced some consumers to self-isolate and potentially prompted others to stay away from the shops.

Government borrowing falls

Last week saw publication of the latest public sector finance statistics, which showed borrowing continuing to ease from last year’s mammoth levels. In July, the government borrowed £10.4bn; although this still represents the second-highest July number ever recorded, it was almost half the level borrowed in the same month of 2020. ONS said the budget deficit in the first four months of this fiscal year is now £26.1bn below the Office for Budget Responsibility’s March forecast, reflecting both stronger-than-anticipated receipts and lower-than-expected spending.

‘Triple lock’ could be diluted

It is reported that the ‘triple lock’ – which guarantees the State Pension will rise in line with the highest of earnings, inflation or 2.5% – looks set to be watered down. A COVID-related surge in average earnings means pensioners could be in line for a rise of over 8% next year if the government honours its manifesto commitment. Last Wednesday the Prime Minister’s spokesperson was quoted as saying, “I think we recognise the legitimate concerns about potentially artificially inflated earnings impacting the uprating of pensions.”

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.

Is your home worth more than you think?

Do you think you know how much your property is worth? Would you be surprised if it was worth much more – or much less?

Many homeowners’ estimates don’t live up to reality, with nearly half of respondents (45%) to a survey1 undervaluing their property and 25% overestimating its worth. Less than a third were correct.

Those who underestimated, did so by £46,305 on average, while those who overvalued thought their property was worth £44,313 more. Taking all responses together, homeowners were shown to be underestimating the value of their properties by £9,470 on average, or £237bn collectively.

What is your home worth?

Understanding your property’s value could have a significant impact on your life. Of those who sold their home after taking the survey, 81% said their unexpected windfall had enabled them to improve their lifestyle.

1Zoopla, 2021

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. You may have to pay an early repayment charge to your existing lender if you remortgage.

Taking emotion (and colour!) away from investment decisions

It is fascinating to consider the psychology of investing. There are many behavioural traps that investors could find themselves falling into during times of market volatility, when knee jerk reactions can take hold.

One example being ‘the anchoring trap’, which is where investors rely too much on their perceptions of an investment, which could be totally incorrect, rather than being flexible in their thinking and responsive to new data.

Separating emotions from market reaction and investment selection is a whole different challenge. It can be hard to manage our impulses when we see markets fluctuate and we can easily underestimate the risks associated with investments. These are just a couple of reasons why investors sometimes make poor decisions based on emotion, which can result in financial loss.

Red flag to a bull

Another added complication has been highlighted by an interesting new study1 which shows that if financial information is presented in red, it tends to make people more pessimistic about the market than presenting the same facts in blue or black. It seems that using the colour red to represent financial data, influences individuals’ risk preferences, expectations of future stock returns and trading decisions. Such effects are not present in those who are colour blind and are muted in China, where red represents prosperity.

Assistant Professor of Finance at the University of Kansas, William Bazley, who undertook the research, commented on the findings, “The use of colour could lead to investors avoiding the platform or delaying important financial decisions, which could have deleterious long-term consequences. In Western cultures, conditioning of red colour and experiences start in early schooling as students receive feedback regarding academic errors in red. Red is associated with alarms and stop signs that convey danger and command enhanced attention.”

Good behaviour

The good news is that having your finances and portfolio managed for you is one effective way you can avoid these potential behavioural pitfalls. You can rely on us to make informed, consistent investment decisions, not based on emotion but on a robust, objective and disciplined process. We take the time to understand your objectives, apply a rigorous process and advise you on the strategies and products most appropriate for you.

1The University of Kansas, 2021

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.