Month: August 2023

Data from economies around the world indicate business output and confidence could be slowing. Read on to find out what influenced the investment market in July 2023.

Despite some data suggesting there could be a downturn in some areas, the International Monetary Fund (IMF) has lifted its global growth forecast for 2023. The organisation now expects the global economy to grow by 3%, up from its previous prediction of 2.8%.

Globally, both households and businesses could face pressure as energy prices may rise in the colder months. The International Energy Agency warned that, if China’s economy rebounds this year, energy prices may spike in winter.

UK

The pace of inflation in the UK is slowing. Yet, it remains stubbornly high and above many other economies at 7.9% in the 12 months to June 2023. The latest inflation figures prompted the Bank of England (BoE) to hike its base interest rate again – as of July 2023, it stands at 5%.

The IMF predicts the BoE will need to keep interest rates high for longer than expected due to economic challenges.

Further rises could cause market volatility – the FTSE 100 hit its lowest closing level of 2023 ahead of the July BoE announcement at the start of the month.

The interest rate increases have led to mortgage rates soaring. In July, the average five-year fixed-rate mortgage deal exceeded 6% for the first time since 2008. In fact, by the end of 2026, the BoE predicts that 1 million households will see their monthly mortgage repayments increase by £500.

While many borrowers have been affected by interest rates increasing almost immediately, saving rates have been lagging. The Financial Conduct Authority set out expectations for “fair and competitive savings” during the month, and savers may have started to see the earnings on their savings rise as a result.

The latest release from the Office for National Statistics shows that between February and April 2023, the average wage increased by 7.2%. While growth is good news, the figure is below inflation and so wages are falling in real terms.

As well as soaring mortgage costs, food inflation has significantly affected household budgets. So, it may be of little surprise that a survey for i newspaper found 67% of consumers would back the idea of a price cap on essential goods.

Data suggests many businesses are struggling too.

According to a Purchasing Managers’ Index (PMI) UK factories shrank at their fastest pace in six months in June. Output, new orders, and employment levels all fell and could signal the challenges will continue into the medium term.

As businesses struggle with rising costs, insolvencies are expected to rise. Figures released by the Insolvency Service show business bankruptcies were 27% higher in June when compared to the same period in 2022.

Begbies Traynor, a business recovery and financial consultancy, believes insolvencies will rise over the next 18 months due to interest rate hikes. The firm added that “zombie” businesses have been able to continue operating due to cheap borrowing costs but will now struggle to service debts.

While there have been ups and downs in the market throughout July, the pound hit a 15-month high after all major UK banks passed BoE stress tests.

Europe

Inflation in the Eurozone fell to 5.5% in the 12 months to June 2023. While still above the long-term average, it’s lower than the 8.6% recorded in June 2022.

In response, the European Central Bank increased interest rates to its highest level in more than 20 years. The deposit rate is 3.75% as of July 2023.

PMI data indicates businesses in the Eurozone are facing similar challenges to the UK. Overall business activity fell and moved into negative territory. Factory output was also weak in June, particularly in Austria, Germany and Italy, and employment fell for the first time since January 2021.

US

Steps taken by the Federal Reserve have successfully slowed inflation in the US. In the 12 months to June, it was 3% – a two-year low.

According to PMI data, the US factory sector took a “sharp turn for the worse” in June. The results mirror the situation in Europe, with new orders falling. It’s increased concerns that the country could slip into a recession in the second half of the year.

While there may be worries about the US economy, official data indicates businesses are still confident about their future. American companies added half a million jobs to the economy in June and US wages increased by 4.4%.

In company news, Twitter’s rebrand to X is estimated to have wiped billions off the company’s value.

Since Tesla owner Elon Musk took over the social media platform in October 2022, he’s made a raft of changes. In July, Musk revealed a new name and logo for the platform, which have drawn criticism. According to Fortune, changing the name has wiped out between $4 billion and $20 billion in brand value. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

It can be difficult not to let your emotions influence the decisions you make. When investing, emotional decision-making could be harming your portfolio’s performance and your ability to reach your goals.

While you try to make investment decisions based on logic and facts, it can be easy for emotions, from fear to excitement, to play a role at times. And a survey of financial advisers reveals it could be costing you more than you think.

According to a report in FTAdviser, financial advisers believe emotional decision-making costs investors at least 2% each year in foregone returns. They believe two of the biggest mistakes investors make are:

• Being too influenced by the news (47%)
• Taking too little risk (44%).

If you’ve been guilty of these mistakes in the past, you’re certainly not alone. The good news is that there are things you can do to reduce the effect emotions have on your investments. Read on to find out how you could tackle these two mistakes.

1. Tuning out the news to focus on your long-term plan

Market volatility is part of investing. Unfortunately, sensational headlines about markets “soaring” or “plunging” sell. However, they often don’t show the bigger picture – that even after volatility, markets have, historically, smoothed out over the long term and delivered returns.

On top of providing a snapshot, rather than an in-depth look at markets, remember that the news isn’t tailored to you. An investment opportunity that is perfect for one person, may not be right for another.

If you read about markets falling sharply or the latest “must invest” tip in the newspaper, it’s natural to think about what it means for your investment portfolio. Perhaps you’re scared that volatility could mean the value of your assets will fall and you won’t be able to retire when you intend? Or maybe you feel a thrill at the thought of investing in the next big technology firm?

Tuning out the noise can be difficult, but it may reduce the chance of emotions affecting your decisions.

Working with a financial planner may help you reduce the effect the news has on your mindset. It means you have someone to turn to if you have concerns or would like to pursue an opportunity. Speaking to a professional about your options could prevent knee-jerk decisions you might regret later.

Creating an investment strategy that’s tailored to your goals and circumstances with a financial planner may also give you the confidence to dismiss the news.

At times, your portfolio may dip but understanding why investments have been selected and how it fits into your overall plan could put your mind at ease.

2. Balancing how much investment risk you should take

It’s common to hear that investors are worried about taking too much risk. After all, too much risk could mean you’re more likely to lose your money, and it could affect your progress towards your life goals. Yet, nervous investors can take too little risk.

While you may feel comfortable taking less risk as your money is “safer”, you could miss out on potential growth. Taking too little risk for your circumstances may mean falling short of your goals, even though you had an opportunity to achieve them.

Setting out a risk profile is an essential part of understanding which investments are right for you.

It can be difficult to understand how much risk is appropriate. A financial planner could help you here. By considering a range of areas, from what assets you hold to your investment goals, we can create a risk profile that suits you.

By understanding risk and what’s appropriate for your circumstances, you could reduce the effect emotions like fear have on your decisions. You may feel confident enough to take greater investment risk if it’s right for you and find yourself in a better position to reach your goals.

Want to review your investments? Contact us

Tailored investment advice may help you reduce the effect emotions have on your decisions so you can focus on what’s right for your circumstances.

Whether you want to start investing or would like a portfolio review, please contact us. We can work with you to create an investment strategy that you have confidence in and provide ongoing support so you have someone to turn to if you have any questions or concerns.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Since the government introduced pension auto-enrolment in 2012, millions more workers have started saving for their retirement. Now, the government has confirmed plans to extend auto-enrolment to encourage a savings boost. The changes could have implications for both employees and business owners.

In a publication, the government has revealed key announcements following a review of auto-enrolment that started in 2017. The reforms are forecast to increase pension contributions by £2 billion a year.

3 key auto-enrolment changes to be aware of

1. The minimum age of auto-enrolment will fall from 22 to 18

Young workers could start saving into a pension much sooner. The government intends to lower the minimum auto-enrolment age from 22 to 18.

For employees, this could be a positive step. Saving for retirement from the outset of their careers could help establish positive money habits among workers. In addition, compound growth means early contributions have the potential to grow significantly.

For business owners, it could mean their outgoings will increase as they’ll also need to make pension contributions on behalf of eligible workers.

2. The lower earnings limit will be removed

At the moment, workers must earn at least £6,240 to be eligible for auto-enrolment. The government plans to remove this lower earnings limit, so workers will receive contributions from the first pound they earn.  

This will boost pension contributions among those that are already paying into a pension. It will also mean low-income workers that haven’t previously benefited from a pension, such as those who work part-time while caring for children or older relatives, will automatically start paying into a pension and receive employer contributions too.

While more people saving for retirement is a positive step, there are concerns it could lead to an increase in the number of employees opting out.

Speaking to FTAdviser, Tom Selby, head of retirement policy at AJ Bell, said: “Ratcheting up contributions during a cost of living crisis could be the straw that breaks the camel’s back for some savers, who might decide they simply cannot afford to put money to one side for retirement.”

From an employer’s perspective, this change could, again, increase the amount they are contributing to employees’ pensions.

3. There could be a maximum limit on pension pots

As most employees are entitled to a pension through their employer, frequent job hopping could lead to individuals holding numerous small pensions. This may make it difficult to manage pensions effectively and understand if you’re on track to reach your retirement goals.

In its report, the government sets out initial plans to help savers manage multiple pots. Among the proposals is a maximum limit on the number of pensions a person can have. The report also suggests a central clearing house to make it simpler to consolidate pensions.

3 omissions from the auto-enrolment expansion

1. There is no timescale for the proposed changes

While reports suggest the government plans to implement the changes by the mid-2020s, the official document doesn’t set out a timescale. So, while young and low-income workers are set to benefit from auto-enrolment, it could be several years before they start contributing to pensions.

2. The minimum pension contribution will not be increased

Research suggests that minimum contribution levels are not enough to afford a comfortable lifestyle in retirement. A recent Scottish Widows report indicates a third of Brits could struggle in retirement because they’re not putting enough away during their working life.

Under the current rules, the minimum contribution is 8% of qualifying earnings, made up of 5% from employees and 3% from employers.

There have been calls for the government to increase the minimum pension contribution level to help close the gap.

3. Auto-enrolment won’t be extended to cover self-employed workers

Some organisations have called on the government to extend auto-enrolment to encourage self-employed workers to save for their retirement. However, support for the self-employed has been overlooked in the latest report.

Research from the Institute for Fiscal Studies suggests the number of self-employed workers paying into a pension has fallen over the last decade.

It also found self-employed workers that pay into a pension rarely change the amount they contribute. The analysis suggested a form of auto-escalation, such as a direct debit that increases in line with inflation, could help self-employed workers save more for their retirement.

Take control of your pension and retirement

While the change to auto-enrolment could mean more people are on track for a financially secure retirement, there are still challenges. If you want to reach your retirement goals, engaging with your pension sooner, rather than later, could allow you to identify the steps you need to take.

Please contact us to discuss your retirement aspirations and how we could help you create a tailored financial plan.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

Visiting the supermarket to pick up a few items or do your weekly shopping is so common it can be difficult to imagine life without this convenience. Yet, it wasn’t too long ago that the first supermarket was opening its doors in the UK. And looking back offers an interesting insight into how money and shopping habits have changed.

The London Co-operative Society opened its doors for the first time in 1948.

It offered a very different service to other shops of the time. Shoppers were used to chatting with the shopkeeper while an assistant picked the items for them. In fact, shoppers wouldn’t have handled the goods at all until they paid.

So, walking into a “self-service” supermarket – where customers picked up their items themselves and took them to a till – was a very different experience. On top of that, there were all kinds of goods under one roof and competitive prices. It’s easy to see why supermarkets became popular.

Today, there are thousands of supermarkets across the UK, from the “big six” to independent stores. And “self-service” has gone one step further with many shops installing checkouts customers can use themselves.

In the 75 years since the first supermarket opened, how we use money, the value of it, and shopping habits have changed enormously. Looking at inflation and how it’s calculated offers a glimpse into this transition. 

£1,000 in 1946 has the same value as almost £34,500 today

The UK first started tracking retail prices a year after the first supermarket opened. It shows how prices have changed over seven decades.

Data from the Office for National Statistics (ONS) demonstrates how inflation influenced prices between 1947 and 2023. While there have been times retail prices have dipped, overall, it’s been an upwards trend.

Source: Office for National Statistics

In fact, according to the Bank of England’s inflation calculator, £1,000 in 1946 would be equivalent to almost £34,500 today.

The ONS measures inflation by tracking a “basket of goods”. This basket is filled with common goods and services to understand how the cost of frequent purchases changes. Currently, there are around 700 representative consumer goods and services in the basket. As well as groceries from the supermarket, it also includes items like clothing and electronics.

The items are regularly reviewed. So, not only does it track prices, but trends and spending habits.

When the first supermarket opened, rationing was still in place. In the post-war era, the ONS included items like condensed milk, which was often used to make rations stretch further. Condensed milk remained in the basket until 1987 when fresh, pasteurised milk became more widely available.

Fast forward to 2023, and new additions to the basket include frozen berries and free-from products.

3 interesting comparisons that show the power of inflation

1. The average salary was 126 shillings, 9 pence

Before the government introduced decimalisation in 1971, there were 20 shillings to a pound and 12 pence to a shilling. According to the House of Commons library, the average worker earned 126 shillings, 9 pence a week in November 1946.

Inflation means the average earnings in April 2023 are significantly more. Data from ONS shows the average weekly salary is £603, excluding bonuses.

2. A weekly grocery shop was just 45p

According to the Northumberland Gazette, the average person needed just 45p to pick up a week’s worth of groceries in the 1940s. In today’s money that would be less than £20.

However, food inflation and changing habits mean the average adult spends around £44 a week on food in 2023.

3. A property “boom” led to prices quadrupling in some areas

Soaring property prices are often discussed in newspapers today, and it’s not a new phenomenon.

A 1947 article in the Guardian states there was a “boom in house property prices”. In 1939, houses went for around £500. Just eight years later, aspiring homeowners could expect to pay up to £1,500, or even up to £4,000 in select residential districts.

Over the next seven decades, house prices outstripped inflation. The Halifax House Price Index suggests the price of an average house in June 2023 was more than £285,000.

Have you considered how inflation could affect your finances?

Since the first supermarket opened its doors, inflation has affected the value of money. This is something you may need to consider when managing your finances.

For example, if you’re planning for retirement in 20 years, how will the income you need to maintain your lifestyle change? How can you grow your assets to keep up with the pace of inflation?

A financial plan that incorporates inflation could help you understand how it may affect your wealth and the steps you might take to protect it. Please contact us to arrange a meeting to discuss your financial plan.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.