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May 2023 Economic Review

May 2023 Economic Review

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UK growth forecasts upgraded

Revised projections released last month by both the Bank of England (BoE) and International Monetary Fund (IMF) suggest the UK economy is now set to avoid recession this year.

The BoE’s latest forecast predicts the economy will grow by 0.25% across the whole of 2023, a significant upgrade from February’s prediction of a 0.5% contraction. This improved outlook reflects a number of factors, including stronger than anticipated global growth, lower energy prices and the fiscal support announced by the Chancellor in his Spring Budget.

Updated IMF figures also show the UK is now unlikely to enter recession, with the international soothsayer predicting a growth rate of 0.4% for 2023; in comparison, its previous forecast had suggested the economy would contract by 0.3% over the course of this year. The IMF said growth would be helped by ‘resilient demand ‘as well as falling energy prices and praised the UK authorities for taking ‘decisive and responsible steps in recent months.’

The latest gross domestic product (GDP) figures published by the Office for National Statistics (ONS), however, highlight how fragile the recovery remains with growth still sluggish. Although GDP across the first three months of 2023 did edge up by 0.1%, a similar tepid pace as achieved during the final quarter of last year, monthly data revealed an unexpectedly sharp drop in output during March, with GDP actually declining by 0.3% during the month.

Recently released data from the closely watched S&P Global/CIPS UK Purchasing Managers’ Index (PMI), though, does suggest growth has picked up in the second quarter. May’s preliminary headline reading came in at 53.9, lower than April’s one-year high of 54.9, but comfortably above the 50 threshold that denotes growth in private sector output. Indeed, S&P Global noted that their PMI readings were consistent with ‘GDP rising 0.4% in the second quarter.’

Interest rates rise again

Last month, the BoE announced another hike in its benchmark interest rate and insisted it will ‘stay the course’ in its battle to bring down inflation.

Following its latest meeting, which concluded on 10 May, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 7-2 majority to raise Bank Rate by a further 0.25 percentage points. This was the 12th consecutive increase, taking rates to 4.5%, their highest level in almost 15 years.

Commenting after announcing the decision, BoE Governor Andrew Bailey made it clear that the Bank’s next moves would depend on the trajectory of forthcoming data. However, Mr Bailey did stress that, “We have to stay the course to make sure inflation falls all the way back to the 2% target.”

The minutes to the meeting also warned that the Bank now believes inflation will remain higher for a longer period, largely as a result of food price inflation which is ‘likely to fall back more slowly than previously expected.’ Its latest forecast, which was published alongside the rate decision, suggests inflation will fall to 5.1% by the end of this year, significantly higher than its previous forecast of 3.9%.

ONS data published two weeks after the MPC’s announcement confirmed that the headline rate of inflation remains stubbornly high. While it did fall from 10.1% in March to 8.7% in April, as the extreme energy price hikes seen a year ago dropped out of the calculations, the figure was much higher than the consensus forecast in a Reuters poll of economists which had predicted a rate of 8.2%.

April’s inflation data surprise has undoubtedly increased the likelihood of further rate hikes in the coming months. The next decision is due to be announced on 22 June with analysts now typically expecting another 0.25 percentage point rise.

 

Markets (Data compiled by TOMD)

At the end of May, global markets closed the month largely in negative territory, with investors awaiting the outcome of the key vote on the US debt ceiling. In addition, the latest economic data from China, which highlighted a further decline in manufacturing activity, also weighed on sentiment.

In the UK, the FTSE 100 ended the month on 7,446.14, a loss of 5.39%, while the mid cap FTSE 250 closed down 3.62% on 18,722.90 and the FTSE AIM closed May on 782.77, a monthly loss of 5.68%.

In the US, the Dow Jones index closed the month down 3.49% on 32,908.27, while the NASDAQ closed the month up 5.80% on 12,935.28. On the continent, the Euro Stoxx 50 closed May on 4,218.04, a loss of 3.24%. In Japan, the Nikkei 225 closed the month up 7.04%, on 30,887.88. The index recently reached historic highs in May, with market sentiment buoyed by the potential of the semiconductor and AI markets.

On the foreign exchanges, the euro closed the month at €1.16 against sterling. The US dollar closed at $1.23 against sterling and at $1.06 against the euro.

 

Brent crude closed the month trading at around $73 a barrel, a monthly loss of 8.60%. At month end, traders awaited news on progress of the US debt bill, digested the weak Chinese manufacturing data, and considered how the weakening growth could impact crude demand. Gold closed the month trading at $1,964.40 a troy ounce, a small monthly loss of 0.92%.

Index                                                  Value (31/05/23)                           Movement since 28/04/23

 

FTSE 100                                            7,446.14                                                           -5.39%                               

FTSE 250                                           18,722.90                                                         -3.62%                               

FTSE AIM                                          782.77                                                               -5.68%

Euro Stoxx 50                                  4,218.04                                                           -3.24%                               

NASDAQ Composite                      12,935.28                                                         +5.80%                               

Dow Jones                                        32,908.27                                                         -3.49% 

Nikkei 225                                        30,887.88                                                         +7.04%                                                                                           

 

More optimistic outlook for retailers

Official retail sales statistics showed a slightly stronger-than-expected increase in sales volumes during April while survey evidence points to modestly rising levels of optimism within the retail sector.

The latest ONS retail sales figures revealed signs of consumer spending resilience, with volumes rising by 0.5% in April following March’s sharp decline when sales were hit by unusually wet weather. Furthermore, across the whole of the February-to-April period, sales volumes grew by 0.8% compared to the previous three months; this represents the largest increase recorded on this measure since August 2021.

Evidence from the recently released CBI Distributive Trades Survey suggests the trading environment does remain challenging with sales volumes dipping in the year to May. Sales are expected to stabilise in June, however, and retailers generally expect to see a modest improvement in their business situation over the coming three months.

Commenting on the survey findings, CBI Principal Economist Martin Sartorius said, “Looking ahead, there are some reasons for retailers to be more optimistic about the outlook. Consumer sentiment has been improving and households’ energy bills are set to decline from July. The resulting boost to incomes should help support retail sales going into the second half of this year.”

Unemployment rate edges higher

The latest batch of labour market statistics suggests a further softening in the jobs market with a rise in the rate of unemployment and another fall in the number of job vacancies.

ONS figures released last month showed that the unemployment rate during Q1 edged up to 3.9%, a 0.1 percentage point increase from the previous three months. This was higher than the median forecast in a Reuters poll of economists which had predicted the rate would hold steady at 3.8%.

In addition, the estimated total number of job vacancies fell by 55,000 during the three months to April, hitting its lowest level since mid-2021. This was the tenth consecutive decline, with ONS saying that companies continued to cite ‘economic pressures’ as a factor in holding back on recruitment.

The labour market update also reported the number of people not working due to long-term sickness at a new record high. Over two and a half million people are now not working due to health issues, with ONS saying the increase has been driven by a rise in mental health conditions among younger age groups, people suffering with back and neck pain, and a rise in post-viral fatigue.

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.

 All details are correct at the time of writing (01 June 2023).

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Recent signs of economic resilience

Recent signs of economic resilience

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While the latest gross domestic product (GDP) statistics revealed that the UK economy stagnated in February, recent survey evidence paints a more positive picture with signs of ‘encouraging resilience’ and ‘growth momentum.’

 Official data released last month by the Office for National Statistics (ONS) showed that the economy saw no growth during February. ONS said that a strong rise in construction activity had been offset by a contraction in the services sector which was hit by a series of strikes by public sector workers, including teachers and civil servants.

 Despite February’s flat performance, an upward revision to January’s growth figure from 0.3% to 0.4%, means that the UK is now likely to avoid a contraction across the first quarter of this year as a whole. Indeed, in the three months to February, the economy actually expanded by 0.1%.

 Responding to the GDP data, Chancellor Jeremy Hunt said that the numbers showed there is “absolutely no room for complacency.” However, he did note that the economic outlook was “brighter than expected” and said that the UK does now seem “set to avoid recession.”

 Survey data released towards the end of last month added to signs that the UK may now defy forecasts of an impending recession. The preliminary headline figure from the S&P Global/CIPS UK Purchasing Managers’ Index, for instance, rose from 52.2 in March to 53.9 in April. This represents the strongest reading for a year and was the third consecutive month that the figure had been above the 50 threshold that denotes growth in private sector output.

Commenting on the survey’s findings, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “The key takeaway is that the economy as a whole is not only showing encouraging resilience but has gained growth momentum heading into the second quarter.”

 

 

Inflation remains stubbornly high

 The latest official consumer prices data showed that the UK headline rate of inflation remains in double digits, making it more likely that the Bank of England (BoE) will sanction another base rate hike at its forthcoming monetary policy meeting.

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 10.1% in March. Although this was lower than the previous month’s figure of 10.4%, it was well above the 9.8% predicted in a Reuters poll of economists and the 9.2% forecast that had been released by the BoE in February.

ONS said the largest downward pressure on March’s rate came from the transport sector as the price of motor fuels continued to decline. Further sharp rises in the cost of food, however, saw the CPI rate remain at a stubbornly high level, with prices across the food and non-alcoholic drinks category rising by 19% in the year to March, the fastest rate of increase for over 45 years.

March’s inflation statistics were the last significant data release before the BoE’s Monetary Policy Committee (MPC) next convenes and policymakers would have been disappointed not to have seen a more significant drop in inflationary pressures. The MPC is scheduled to announce its interest rate decision on 11 May with analysts now typically expecting another quarter percentage-point rise.

Recent comments made by BoE Deputy Governor Dave Ramsden appeared to confirm his desire to raise rates. Writing in The Times, the MPC member said, “When I look at where inflation is and where it needs to get to, I’m more focused on making sure that (we) stay the course in terms of the monetary policy decisions needed to get inflation back to target.”

 

Markets (Data compiled by TOMD)

At the end of April, global markets closed largely in positive territory. Although inflation remains a concern, stock markets closed higher as investors considered fresh economic data and a raft of corporate earnings.

 In the UK, the FTSE 100 ended the month on firmer ground, supported by gains in energy stocks. The blue chip index closed the month on 7,870.57, a gain of 3.13%, while the mid cap FTSE 250 closed up 2.62% on 19,425.14, and the FTSE AIM closed April on 829.94, a monthly gain of 2.55%.

 Despite weak economic growth in Q1, some positive earnings landed stateside, boosted by some strong results from banks and tech firms. In the US, the Dow Jones index closed the month up 2.48% on 34,098.16, while the NASDAQ closed the month up 0.04% on 12,226.58.

On the continent, the Euro Stoxx 50 closed April on 4,359.31, a gain of 1.03%. In Japan, markets traded higher after the Bank of Japan retained its monetary policy. The Nikkei 225 closed the month up 2.91%, on 28,856.44.          

              

On the foreign exchanges, the euro closed the month at €1.14 against sterling. The US dollar closed at $1.25 against sterling and at $1.10 against the euro.

Gold closed the month trading at $1,982.55 a troy ounce, a small monthly gain of 0.19%. The price of gold fell at month end as stronger-than-expected inflation in the US and jobs data weighed, raising expectations of further rate hikes. Brent crude closed the month trading at around $80 a barrel, a small monthly gain of 0.38%.

  

Index                                                  Value (28/04/23)                           Movement since 31/03/23

 

FTSE 100                                            7,870.57                                                           3.13%                                 

FTSE 250                                           19,425.14                                                         2.62%                                 

FTSE AIM                                          829.94                                                               2.55%

Euro Stoxx 50                                  4,359.31                                                           1.03%                                 

NASDAQ Composite                      12,226.58                                                         0.04%                                 

Dow Jones                                        34,098.16                                                         2.48%   

Nikkei 225                                        28,856.44                                                         2.91%                                                                                             

 

Rain dampens retail sales figures

Official data shows that sales volumes fell by a greater-than-expected amount in March with retailers blaming poor weather conditions for a reduction in shopper numbers.

The latest ONS statistics revealed that total retail sales volumes fell by 0.9% in March compared to the previous month’s figure. This decline was driven by the sixth-wettest March on record, which hit clothing retailers and garden centres, while food store sales also fell as consumers continued to be hit by soaring prices and shortages of some products.

ONS Director of Economic Statistics Darren Morgan, however, noted that the broader trend was less subdued than March’s figures alone suggest. Mr Morgan said, “A strong performance from retailers in January and February means the three-month picture shows positive growth for the first time since August 2021.”

Data from GfK’s latest Consumer Confidence Index also points to rising consumer optimism. The headline index increased for the third month in a row to reach -30 in April; this was six percentage points higher than March and the strongest reading since February last year. Consumers’ expectations for the economy and prospects for their personal finances both rose, along with shoppers’ willingness to make expensive purchases.

Further fall in job vacancies

The latest batch of employment statistics revealed a rise in the rate of unemployment and a fall in the number of job vacancies reflecting softer conditions in the labour market.

During the December to February period, the unemployment rate edged up to 3.8%, from 3.7% in the previous three months, to reach its highest level since the second quarter of 2022.

The labour market update also revealed that the total number of job vacancies fell for the ninth month in a row, falling by 47,000 in the January to March period. ONS said that companies had blamed ‘economic pressures’ as a factor for holding back on hiring new staff, although the statistics agency also noted that vacancy numbers still remain at a historically high level.

There was, however, a rise in the number of people looking for work principally driven by more young people leaving full-time education to find a job. In the three months to February, the employment rate edged up to 75.8%, 0.2 percentage points higher than in the previous three-month period, reflecting growth in the number of part-time employees and self-employed workers.Economic Review

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.

 

All details are correct at the time of writing (02 May 2023)

 

 

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Three big pension questions you should ask your financial adviser

Three big pension questions you should ask your financial adviser

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The dust has settled on the Spring Budget Statement, which came with the headlines of growth. In the statement the Chancellor announced a number of changes to pensions, many of which have significant impact on higher earners and tax payers.

If you haven’t found time to sit down with your financial adviser and discuss the implications of these changes for your pension, we think there are three big questions to ask.

 

Can I put more into my pension?

 

The short answer is yes. The pension annual allowance is the total amount you can save into your pension plans each year before you have to pay an additional tax charge. This allowance has been increased to £60,000 (up from £40,000) from April 2023.

In addition. the Government announced that it will abolish the lifetime allowance. As a result, from 6 April 2023 the lifetime allowance (LTA) charge would be removed. You can find the detailed proposed legislation for these changes in the Finance Bill. The lifetime allowance will be fully abolished from the 2024 to 2025 tax year, through a future Finance Bill. This means that from 6 April 2023 the current lifetime allowance framework remains in place and the lifetime allowance for 2023 to 2024 remains at £1,073,100.  So now you can make pension contributions up to 100% of your yearly earnings or up to the annual allowance of £60,000, whichever is lower.

 

Can I reduce my tax by paying more into a pension?

 

Again, the short answer is yes, but the exact amounts very much depend on what you are earning.

If you’re a higher earner then you might have been impacted by an allowance known as the tapered annual allowance.  From April 2023, the adjusted income level will increase from £240,000 to £260,000 and the minimum annual allowance that you can be tapered to will increase from £4,000 to £10,000.

The tapered allowance means that for every £2 your adjusted income goes over £260,000, your annual allowance for the current tax year reduces by £1 down to a minimum of £10,000.

Remember also if you earn above £100,000 you start to lose your personal allowance, and so a pension contribution could give you this back.

 

How can I use my pension to reduce my inheritance tax liability for my family?

 

When you die, any unspent money in your private pension pot can be passed on to one or more beneficiaries of your choice. Pension pots are not subject to inheritance tax when you die. If you die before the age of 75, the person(s) who inherit your pension pot can draw on the money as they wish, without paying any income tax either.

So in simple terms, if you can invest more into your pension pot, you will be ensuring your family inherit more of your wealth.

 

Inevitably we have simplified much of the complex arrangements around pensions here, and the best way to work out how to maximise your pension arrangements is to speak to an independent adviser about your own situation. Do get in touch if you earn over £100,000 and would like some advice on your pension arrangements.

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Your Window on Wealth: Investor Confidence Returns – Spring 2023

Your Window on Wealth: Investor Confidence Returns – Spring 2023

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You can download this update here

A recent survey1 suggests investors are becoming more confident despite ongoing challenges on the economic front. While this is certainly encouraging, maintaining a long-term outlook and retaining a strong sense of discipline in investment positioning remains a prerequisite for any successful investor.Page

An air of optimism

It’s fair to say 2022 was a turbulent year for global markets with the war in Ukraine, soaring inflation and rising interest rates weighing heavily on a difficult 12-month period. Towards the end of the year, however, markets did stage a cautious recovery despite ongoing fears of a looming recession.

Inflation expected to fall

The final quarter of last year also witnessed a rebound in investor sentiment, with the same survey reporting a seven-percentage point rise in confidence in the global economy, although this was before the recent woes in the banking sector. This optimism was driven by hopes that inflation has now peaked and is set to continue falling in the months ahead; a view reflected in the International Monetary Fund’s latest economic musings2 which predict global inflation will drop from 8.8% in 2022 to 6.6% this year and 4.3% in 2024.

Young guns

Data from the survey also revealed a majority of investors were either positive or ambivalent about last year’s market volatility and its impact on their investing mindset. This was particularly true for younger investors with three-quarters of 18 to 34-year-olds either positive or indifferent compared to six in ten over-55s. This variation will partly reflect differing retirement time horizons, with younger investors more able to adopt a longer-term view.

Investor discipline is key

This is clearly encouraging as maintaining a long-term philosophy based on prudent risk management principles and avoiding panicked decisions has always been a key element for successful investing, maintaining discipline in investment positioning. In practice, this means achieving an appropriate level of diversification and understanding how to blend investments – that’s what we do.

1eToro, 2023

2IMF, 2023

 

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.

Taking steps to offset fiscal drag

The gradual reduction of disposable income due to inflation and changes in tax brackets, or frozen tax allowances, will weigh on your finances, causing ‘fiscal drag.’

By implementing various strategies, you can potentially reduce the impact of fiscal drag on your investments and increase your chances of achieving your long-term financial goals.

The worst thing to do is – nothing. By succumbing to inertia, you are more likely to pay increased levels of tax, whether in relation to Income Tax due to the frozen personal allowances and reduced Dividend Allowance, or other taxes including Capital Gains Tax (CGT) and Inheritance Tax (IHT).

The good news – there are legitimate mitigation strategies and, depending on your personal circumstances, allowances and tax reliefs available. By using your Individual Savings Account (ISA) allowance or making your pension contributions early in a new tax year, you could benefit from extra potential growth, as well as receiving an element of your tax relief earlier on your pension and any pension contributions. Consider tax-efficient investments, diversify your portfolio and rebalance regularly to ensure your asset allocation remains aligned with your objectives and attitude to risk; rebalancing will help minimise the impact of fiscal drag over time.

 

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. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning.

 

Spring Budget 2023 – key points

 

Chancellor Jeremy Hunt delivered the Spring Budget on 15 March declaring it to be “A Budget for Growth.” The fiscal update included a range of new measures, starting with the latest economic projections from the Office for Budget Responsibility (OBR):

  • The UK economy is expected to contract by 0.2% this year, with growth predicted to hit 1.8% in 2024 and 2.5% in 2025. A technical recession is expected to be avoided in 2023
  • Inflation is predicted to fall from an average rate of 10.7% in Q4 2022 to 2.9% by the end of this year. This decline is partly due to the three-month extension to the Energy Price Guarantee (EPG), which the government confirmed on 15 March.

The Chancellor’s strategy for growth focuses on four pillars ‘Everywhere, Enterprise, Employment and Education.’ Key areas within these pillars include:

  • Investment for ‘Levelling-Up’ initiatives
  • Providing the right conditions for businesses to succeed
  • New measures to get people back to work, including childcare support.

Pensions

The spotlight also fell on pensions. To encourage over-50s to extend their working lives, the government is increasing tax relief limits on pension contributions and pots:

  • The Annual Allowance will be raised from £40,000 to £60,000 from April 2023; the Lifetime Allowance (LTA) charge will be removed from April 2023, and the LTA will be abolished from April 2024
  • The maximum amount that can be accessed tax free (Pension Commencement Lump Sum) will be frozen at its current level of £268,275 (25% of current LTA)
  • From April, the minimum Tapered Annual Allowance (TAA) and the Money Purchase Annual Allowance (MPAA) will increase from £4,000 to £10,000. The adjusted income threshold for the TAA will also rise, from £240,000 to £260,000.

In addition, previously announced State Pension increases from April 2023 are as follows:

  • Basic State Pension – increase to £156.20 per week
  • Full new State Pension – increase to £203.85 per week.

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.

In the news

 

Land driving surge in UK’s net worth

Recent data from the Office for National Statistics (ONS)3 shows that the UK’s net worth rose by £1trn in 2021, to total £11.8trn, the largest annual increase on record (9.2%). This rise can be attributed to the increasing value of land, accounting for over 60% of net worth. Aligned with this, the data shows that households’ net worth grew to £12.3trn in 2021, 7.6% up on the previous year, representing the strongest growth since 2016. ‘Land continues to be the largest asset driving more than half of the sector’s growth,’ according to ONS.

Crypto clampdown

The UK government has unveiled plans to ‘robustly regulate’ cryptocurrency market activities like trading and lending by bringing the regulation of crypto assets closer to that of traditional finance. The Treasury confirmed, ‘We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes crypto asset technology. But we must also protect consumers who are embracing this new technology – ensuring robust, transparent, and fair standards.’

A consultation has been launched which runs until 30 April 2023; once legislation is made, the Financial Conduct Authority (FCA) will consult on its detailed rules for the sector.

3ONS, 2023

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.

 

Transferring wealth, your way

 

With the coming years set to see record flows of assets pass down the generations, the thorny issue of wealth transfer has inevitably become an increasingly important financial topic. Seeking professional advice is a crucial step that can ease any inheritance planning anxieties and facilitate the transfer of assets in the way that you want.

‘Great wealth transfer’

The next three decades are set to witness the largest ever intergenerational transfer of wealth as baby boomers pass on assets to their heirs. Analysts have dubbed it the ‘great wealth transfer,’ with trillions set to cascade down the generations.

Intergenerational mismatch

A new survey4, however, highlights baby boomer concerns about how their money may ultimately be spent. According to the research, a third of baby boomers are reluctant to pass wealth to someone whose attitude to money differs from their own; additionally, Gen Z were found to be much more likely to adopt a short-term financial outlook than their forebears. Researchers fear this disparity in attitudes could therefore impact older generations’ wealth transfer decisions.

Bridging the divide

While such differences could create intergenerational conflict, we can help alleviate any issues by building cross-generational connections and ensuring any asset transfer is conducted in a way that meets your specific needs. Developing relationships with your beneficiaries to ensure younger generations will receive financial decision-making support can create invaluable peace of mind for both you and your heirs.

Inheritance options

A range of options are available for people looking to transfer wealth, with lifetime gifting amongst the popular methods of passing on money. Complexities with Inheritance Tax and rules in establishing trusts, though, mean sound advice is critical in order to adopt the most efficient approach.

Here to support you

All the evidence suggests developing strong relationships is key to the success of intergenerational financial planning. So get in touch and, with our support, you and your family can work towards determining and achieving your inheritance planning objectives.

4abrdn, 2023

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.

Are you a wealth accumulator?

 

Having your finances in order brings tremendous peace of mind. Financial wellbeing varies from person to person but fundamentally encompasses having security around money, now and in the future, plus knowing what makes us happy, and having money goals in place to achieve this happiness5.

The combination of money and mindset is crucial, findings show that even if an individual feels confident about their money ‘building blocks’ (income, long-term savings, safety net, debt awareness, assets), they won’t achieve optimal levels of financial wellbeing without a well-considered and focused mindset too; think ‘happiness, future self, written plans, long-term perspective’.

Aegon’s Wellbeing Index also shows that being a high earner doesn’t necessarily equate to being a long-term saver. If a saver has a connection to their future self and understands what gives them joy and purpose, they find long-term perspective. Being one of the highest earners doesn’t necessarily mean that they have long-term perspective. ‘The wealth accumulator’ persona for example has a high level of wealth now and probably in the future, but when it comes to creating a healthy financial mindset, they might not have spent the time thinking, ‘what’s it all for?’ and truly connecting with the mindset element of financial wellbeing.

5Aegon, 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.

A pension – the best (retirement) gift for your child?

 

With the cost of children’s birthday presents and parties often totalling hundreds of pounds – could there be a better way to provide for your child or grandchild?

 

Investing in a pension for your child can provide numerous long-term benefits and go some way to helping them secure a financially stable future. Setting up a pension for your child can also help teach them about the importance of saving and investing for the future.

Who can set up a child’s pension?

A parent or legal guardian can set up the pension; this can be done as soon as the child is born.

Who can contribute?

If you’re a grandparent keen to help out, the good news is that anyone can contribute into the pension, as well as godparents, relatives or friends. As a parent, you manage the pension saving plan until the child turns 18.

What happens when they turn 18?

Whilst they gain control at 18, they won’t be able to access the money until they reach the normal minimum pension age.

How much can you contribute?

Under current rules you can pay up to £2,880 into a children’s pension each year. This will then receive basic rate tax relief, so the government will boost this to £3,600. The majority of people setting up a children’s pension won’t pay this much in, instead choosing to make smaller contributions, which will still build up over time and benefit from tax relief.

Why choose a children’s pension?

It may seem odd thinking about a pension for your child when they are so young, but not only will it help your child later on in life when they think about retirement, but also help with the amount they might contribute into their pension during their lifetime, potentially freeing up more money to fund other life events.

What about a Junior ISA (JISA)?

Another worthwhile tax-efficient children’s saving option is a JISA. One key difference between children’s pensions and JISAs is that with the latter, your child can access the money when they turn 18. With any pension, the money can only be used to save for retirement.

The early bird

Investing in a pension plan for your child can provide them with the financial security they need to achieve their goals in the future. By starting early, they can benefit from compound interest and reinvested dividends, tax benefits, and the potential to grow their savings over time.

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.

Taxman on the trail of unpaid IHT

 

HMRC has set up a new specialist team to target estates of wealthy deceased individuals in order to check whether a greater Inheritance Tax (IHT) liability may have been due than originally calculated by estate executors. This clampdown has seen record amounts of unpaid tax being clawed back by HMRC with levels expected to rise further in the coming years.

 

Record sums recovered

Data obtained through a Freedom of Information request has revealed that a total of £326m was collected by HMRC as a result of targeted IHT investigations in the year to March 2022. This was the largest amount ever recovered and represents a 28% increase on the amount raised by investigators in the previous 12-month period.

 

Threshold freeze

The standard IHT rate is currently 40%, paid on the value of any estate above £325,000; in addition, homeowners benefit from an extra £175,000 allowance if they pass on their primary residence to a child or grandchild. These thresholds, however, have been frozen until 2028, which inevitably means more people are likely to be dragged into the IHT net. In 2021-22, families collectively paid £6.1bn in death duties, up from £5.4bn the previous year, and monthly data up to December suggests the figure for 2022-23 will be even higher.

 

Complex rules

More than 13,000 individuals have been embroiled in IHT investigations since 2019. While some of these bereaved families may have acted deliberately, others are likely to have made innocent mistakes and simply fallen foul of IHT rule complexities. Two areas where mistakes commonly occur relate to the provision of lifetime gifts and the valuation of personal possessions.

 

We’re here to help

If you have any concerns or need advice on any aspect relating to IHT then do get in touch; we’re always happy to help.

 

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. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning.

 

If you would like any advice or information on any of the areas highlighted in this newsletter, please get in touch.

 

It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details.

 

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.

 

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. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

 

The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.

 

The Financial Conduct Authority does not regulate advice on deposit accounts and some forms of tax advice.

 

All details are correct at time of writing – March 2023.

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Your top 5 things to do at the end of the financial year

Your top 5 things to do at the end of the financial year

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With just a few days to the end of the financial year on 5th April, we wanted to remind you of the top 5 things we think you should do to keep in great financial health.

Top up your ISA

The end of the tax year is when your tax free ISA (Individual Savings Account) allowance runs out. Currently the allowance is £20,000. So you still have time to transfer more into your ISA if you haven’t reached that amount. Don’t forget that everything you put in to your ISA is, and stays, tax-free for as long as it is there.

The ISA allowance is not changing in the new financial year. The Junior Individual Savings Account allowance and Child Trust Fund annual subscription limits also remain at £9,000.

Top up your pension

You also have an Annual Allowance for your pension, which is the total amount that you, your employer and any third party can pay in across all your pension plans in a tax year. The standard Annual Allowance is currently £40,000. This is changing in the new financial year, as the Chancellor has increased it to £60,000 from April 2023.

This, and several of the other pension changes in the Budget, will have the impact of allowing people to pay more into their plan. People with higher salaries or bigger pension pots, who can really afford to make the most of these new allowances, are more likely to benefit from the changes.

Just like with an ISA, this limit resets on the 6th April and you have access to your entire allowance again for the new financial year.

There are very many tax benefits from putting money into your pension. If you are the director of a private limited company paying into a pension can help reduce what you pay to HMRC. If you get a work bonus, you might have the option to put some or all of it into your pension plan which could save on tax and National Insurance deductions. We regularly advise clients about how to make the most of their pension as part of their overall tax planning strategy.

Check your state pension

All the information about your state pension is here https://www.gov.uk/check-state-pension – you can check when you are able to claim it and how much it is going to be. In the new financial year, the basic State Pension will increase from £141.85 per week to £156.20 per week. It’s a 10 per cent increase but we would guess it’s probably not enough to give you the comfortable retirement that you are planning – and that you deserve.

Check any personal or occupational pension pots that you have

Your pension provider will send you an annual statement. It will include the value of your pension pot at the start and end of the statement year, contributions paid to your pot and an estimate of the income you could get at your selected retirement date.

If you have several pensions from previous jobs, it will be worthwhile to access all that information and get an overall picture of your pension assets.

Book an appointment to talk to us

Every client we speak to has a unique set of circumstances which mean that we can only give very broad pointers in a blog post. We specialize in advising company directors and high earners on the best way to save into their pensions and eventually to draw money out of their pension. If you are planning on retiring in the next couple of years, now is the perfect time to ensure you are doing everything you can to increase your pension pot and ensure you can take your money out in the right way to support your retirement.

There’s still time to talk to us before the end of the financial year, so book an appointment and we’d be delighted to help you.

Because financial health is financial wealth

 

 

 

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Spring Budget 2023: A budget for growth

Spring Budget 2023: A budget for growth

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You can download this update here

 

Chancellor of the Exchequer, Jeremy Hunt, delivered his first Spring Budget on 15 March declaring it was “A Budget for Growth.” The fiscal update included a range of new measures, some of which had been widely trailed prior to Budget day, in order to achieve growth “by removing obstacles that stop businesses investing; by tackling labour shortages that stop them recruiting; by breaking down barriers that stop people working; and by harnessing British ingenuity to make us a science and technology superpower.”

OBR forecasts

The Chancellor began his statement by unveiling the latest economic projections produced by the Office for Budget Responsibility (OBR) which he said showed the UK would meet the Prime Minister’s priorities to “halve inflation, reduce debt and get the economy growing.” In relation to the first priority, Mr Hunt said the latest OBR figures suggest inflation will fall from an average rate of 10.7% in the final quarter of last year to 2.9% by the end of 2023. This sharp decline is partly due to some of the Chancellor’s Budget measures, including the three-month extension to the household Energy Price Guarantee (EPG), which the government had confirmed earlier in the day.

Mr Hunt also said the OBR forecast suggests the UK economy will now avoid a technical recession this year (defined as two consecutive quarters of economic decline) and then expand in each of the remaining years of the five-year forecast period. According to the updated figures, the economy is expected to shrink by 0.2% this year, a significant upgrade from last autumn’s forecast of a 1.4% contraction, with growth then predicted to hit 1.8% in 2024 and 2.5% in 2025, before easing back towards its medium-term potential growth rate of 1.75% by 2028.

The Chancellor’s growth strategy focuses on the four pillars ‘Everywhere, Enterprise, Employment and Education,’ as previously outlined in his Bloomberg speech in January.

 

Everywhere

Mr Hunt spoke about the government’s plans for ‘Levelling Up,’ including the launch of 12 new Investment Zones. Across these “12 potential Canary Wharfs,” £80m of support per zone will be available for skills, infrastructure and tax reliefs. Mr Hunt also mentioned specific projects selected for local investment, including:

  • £200m for local regeneration projects and £400m for new Levelling Up Partnerships across England
  • £8.8bn over the next five-year funding period for the City Region Sustainable Transport Settlements
  • Up to £8.6m for the Edinburgh Festivals, as well as £1.5m for the repair of Cloddach Bridge, near Elgin, and £20m for the restoration of the Holyhead Breakwater in Anglesey
  • Up to £3m to extend the Tackling Paramilitarism Programme in Northern Ireland.

 

Enterprise

To provide the right conditions for businesses to succeed:

  • A ‘full expensing’ policy will apply from 1 April 2023 until 31 March 2026 to allow investment in IT, plant or machinery to be deducted in full and immediately from taxable profits
  • An increased rate of relief for loss-making R&D-intensive small and medium size enterprises (SMEs) – eligible companies will receive a £27 credit from HMRC for every £100 of R&D investment
  • An extension of higher reliefs for theatres, orchestras, museums and galleries for two further years
  • The Medicines and Healthcare products Regulatory Agency (MHRA) will receive £10m extra funding over two years
  • All of the recommendations from Sir Patrick Vallance’s review of pro-innovation regulation of digital technologies are accepted
  • £900m of funding for AI Research Resource and an exascale computer as well as a commitment to £2.5bn ten-year quantum research and innovation programme through the government’s new Quantum Strategy
  • Innovation Accelerators programme – £100m funding for 26 transformative R&D projects
  • AI Challenge Prize – £1 million prize every year for the next ten years to researchers that drive progress in critical areas of AI.

 

Employment

The Chancellor turned next to Employment, with a suite of new measures to “remove the barriers that stop people who want to from working.” To achieve this, he announced:

Mature workers

  • The expansion of the DWP’s ‘midlife’ MOT scheme, aiming to reach up to 40,000 individuals per year (up from the current 8,000)
  • New ‘Returnerships’ scheme to make existing skills programmes more accessible to older workers and help them upskill and retrain
  • A pension tax relief overhaul; see details in Personal Taxation and Pensions section.

People with long-term illnesses and disabilities

  • A white paper on disability benefits reform
  • The abolition of the Work Capability Assessment for disability benefits claimants
  • A new voluntary employment scheme for people with disabilities
  • £406m to increase support for working adults with mental health, musculoskeletal and cardiovascular problems.

Welfare recipients

  • An increase to the Administrative Earnings Threshold
  • A stronger sanctions regime for Universal Credit claimants.

Care leavers

  • A 50% increase in funding for the Staying Close programme
  • An increase in the Qualifying Care Relief threshold to £18,140 per year plus £375 to £450 per person cared for per week for 2023/24 and these thresholds will then be index-linked, representing a tax cut worth approximately £450 per year on average.

 

Education

Mr Hunt then turned to Education, stating that he wants to reform the childcare system, currently “one of the most expensive systems in the world.”

His new proposal will offer 30 free hours of childcare each week to pre-school-age children aged nine months or above in English households where both parents work. It will be phased in on the following timeline:

  • April 2024 – eligible two-year-olds will receive 15 hours of free childcare per week
  • September 2024 – qualifying children aged nine months to two years will receive 15 hours
  • September 2025 – eligible children aged nine months to three years will receive 30 hours.

Also, schools and local authorities will be funded to increase availability of wraparound care, to enable parents of school-age children to drop them off between 8am and 6pm.

To tackle the problem of unaffordable upfront costs, Mr Hunt also announced support for the 700,000 families on Universal Credit. Another major change involves each staff member in England being able to look after five two-year-olds instead of four, as is already the case in Scotland.

 

Personal Taxation and Pensions

To encourage over-50s to extend their working lives, the government is increasing tax relief limits on pension contributions and pots – the Annual Allowance will be raised from £40,000 to £60,000 from April 2023; the Lifetime Allowance (LTA) charge will be removed from April 2023, and the LTA will be abolished from April 2024. The maximum amount that can be accessed tax free (Pension Commencement Lump Sum) will be frozen at its current level of £268,275 (25% of current LTA). From April, the minimum Tapered Annual Allowance (TAA) and the Money Purchase Annual Allowance (MPAA) will increase from £4,000 to £10,000 and the adjusted income threshold for the TAA will also rise, from £240,000 to £260,000.

As a reminder, the following changes were previously announced in the Autumn Statement 2022:

  • The Income Tax additional rate threshold (ART) at which 45p becomes payable is lowered from £150,000 to £125,140 from April 2023. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland
  • The Dividend Allowance reduces from £2,000 to £1,000 from April 2023 and to £500 from April 2024
  • The annual Capital Gains Tax exemption reduces from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024
  • The Stamp Duty Land Tax nil-rate threshold for England and Northern Ireland is £250,000 for all purchasers and £425,000 for first-time buyers, remaining in place until 31 March 2025.

In addition:

  • The Income Tax Personal Allowance and higher rate threshold remain at £12,570 and £50,270 respectively until April 2028 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved)
  • The basic State Pension will increase in April 2023 from £141.85 per week to £156.20 per week, while the full new State Pension will rise from £185.15 to £203.85 per week. The standard minimum income guarantee in Pension Credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth)
  • Inheritance Tax (IHT) nil-rate bands remain at £325,000 nil-rate band, £175,000 residence nil-rate band, with taper starting at £2m – fixed at these levels until April 2028
  • National Insurance contributions (NICs) Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) are frozen until April 2028
  • The ISA (Individual Savings Account) allowance remains at £20,000 and the JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limits remain at £9,000.

 

Other key points

  • Potholes Fund – an extra £200m for local road maintenance in England in 2023/24
  • Alcohol Duty – rates frozen until August 2023 then uprated by RPI, Draught Relief increased to 9.2% for beer and cider and 23% for wine from 1 August 2023
  • Fuel duty rates – maintaining the rates of fuel duty at the current levels for an additional 12 months
  • Defence spending – an extra £4.95bn for defence over 2023/24 and 2024/25
  • Support for veterans – an additional £33m over the next three years
  • Swimming Pool Support Fund – over £60m for public swimming pools across England
  • Support for charities and community organisations – £100m (England)
  • Plastic Packaging Tax rate – uprated in line with CPI from 1 April 2023
  • Launching ‘Great British Nuclear’ – supporting new nuclear builds, £20bn available for Carbon Capture, Utilisation and Storage (CCUS), and extending the Climate Change Agreement scheme for a further two years
  • Devolved administrations – receiving an additional £630m through the Barnett formula over 2023/24 and 2024/25 (Scottish Government £320m, Welsh Government £180m and Northern Ireland Executive £130m).

 

Closing comments

Jeremy Hunt signed off his announcement saying, “Today we build for the future with inflation down, debt falling and growth up. The declinists are wrong and the optimists are right. We stick to the plan because the plan is working.”

 

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 of the Budget and taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. 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 individual circumstances.

All details are believed to be correct at the time of writing (15 March 2023)

 

 

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Economic Review February 2023

Economic Review February 2023

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You can download this update here

Interest rate peak may be approaching

Last month the Bank of England (BoE) announced another hike in its benchmark interest rate but hinted that rates may now be nearing a peak, as the tide in its battle with inflation begins to turn.

Following its latest meeting held at the beginning of February, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 7–2 majority to raise Bank Rate by 0.5 percentage points to 4.0%. This was the tenth consecutive increase sanctioned by the MPC and took rates to their highest level in over 14 years.

The minutes to the meeting noted that ‘considerable uncertainties’ around the outlook remain and that risks to inflation are ‘skewed significantly to the upside.’ However, they also stated that updated MPC projections show ‘inflation falling back sharply’ from current elevated levels, with the headline rate expected to dip to around 4% towards the end of the year.

Commenting after announcing the MPC decision, BoE Governor Andrew Bailey cautiously acknowledged that price rises have begun to edge back. Mr Bailey said, “We’ve seen the first signs that inflation has turned the corner. But it’s too soon to declare victory just yet –inflationary pressures are still there.”

The latest official inflation statistics also suggest the headline rate is now on a downward path. The Consumer Prices Index (CPI) annual rate – which compares prices in the current month with the same period a year earlier – fell to 10.1% in January. This represents the third successive monthly decline since CPI inflation hit a 41-year high of 11.1% in October.

Although analysts do still typically expect the MPC to sanction at least one more hike, there does seem to be a growing consensus that the high point in the current interest rate cycle is approaching. The next MPC meeting is due to conclude on 23 March.

 

Bank of England predicts shallower recession

Updated economic forecasts published last month by the BoE suggest the UK will enter recession this year but that the downturn will be less severe than previously feared.

According to the latest economic growth figures released by the Office for National Statistics (ONS), the UK narrowly avoided entering recession at the end of 2022. Despite monthly data showing the economy shrank by 0.5% in December, growth in the previous two months resulted in an overall growth rate of zero across the final quarter of last year.

While this figure is only a first estimate and may therefore be revised, either up or down, it does currently show the UK avoided a second successive quarterly contraction which would have met the technical definition of a recession. Analysts, however, still expect further economic weakness this year – CBI Lead Economist Ben Jones, for instance, commented, “We may have avoided a technical recession late last year, but we probably won’t avoid one this year.”

The BoE’s latest economic assessment also suggests the UK will enter recession during the coming months, although their revised projections imply any downturn will be ‘much shallower’ than previously envisaged. The Bank now expects the economy to shrink by 0.5% during 2023, significantly lower than the 1.5% contraction forecast in November, with the recession expected to last five quarters rather than eight as previously predicted.

Survey data released towards the end of last month has even raised hopes that the UK might actually avoid recession altogether during the first half of this year. The preliminary headline figure from the S&P Global/CIPS UK Purchasing Managers’ Index jumped to 53.0 in February, up from 48.5 the previous month. This is the first time since July that the reading has been above 50, the threshold which indicates growth in private sector output.

 

Markets (Data compiled by TOMD)

On 27 February, Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen announced a new agreement had been reached on post-Brexit trading arrangements for Northern Ireland. At month end, investors were digesting the trade deal between the UK and the European Union. 

In the UK, the FTSE 100 hit the 8,000 milestone for the first time in mid-February, as concerns of a global recession began to ease. Shares were supported by the release of better-than-expected inflation data. The blue-chip index moderated to close the month on 7,876.28, a gain of 1.35% in February. The FTSE 250 ended the month up 0.25% on 19,903.28, while the FTSE AIM closed out the month on 859.37, a small monthly loss of 0.97%.

In the US, the NASDAQ closed February on 11,455.54, a loss of 1.11%. The Dow Jones index closed the month down 4.19% on 32,656.70. In Japan, the Nikkei 225 closed February up 0.43%, on 27,445.56. Japan equities were supported at month end by gains in the Machinery, Precision Instruments and Electrical / Machinery sectors. On the continent, the Euro Stoxx 50 closed the month on 4,238.38, registering a gain of 1.80%.

On the foreign exchanges, the euro closed the month at €1.14 against sterling. The US dollar closed at $1.20 against sterling and at $1.06 against the euro.

Brent crude closed the month trading at around $83 a barrel, a loss of 1.77% over the month. Gold closed the month trading at around $1,824 a troy ounce, a monthly loss of 5.16%. The gold price has been negatively impacted in the month following the release of strong economic data, fuelling expectations of more interest rate increases.

 

Index                              Value (28/02/23)                 Movement since 31/01/23

 

FTSE 100                        7,876.28                                  +1.35%                               

FTSE 250                       19,903.28                                +0.25%                               

FTSE AIM                      859.37                                      -0.97%

Euro Stoxx 50              4,238.38                                  +1.80%                               

NASDAQ Composite  11,455.54                                -1.11%                               

Dow Jones                    32,656.70                                -4.19% 

Nikkei 225                    27,445.56                                +0.43%                                                                                           

 

Retail sales rebound unexpectedly

Official data has revealed a surprise increase in sales volumes during January, although more recent survey evidence does suggest the retail outlook remains challenging.

According to the latest ONS data, total sales volumes in January rose by 0.5%, as shoppers sought to take advantage of New Year sales promotions. ONS said discounting helped lift sales at online retailers as well as jewellers, cosmetic stores and carpet and furnishing shops, although growth was also partly driven by an increase in fuel sales as prices at the pumps continued to decline.

Data revisions, however, saw December’s figure fall more sharply than previously reported, with updated data showing a drop of 1.2% from November rather than the originally estimated 1.0% decline. Darren Morgan, Director of Economic Statistics at ONS, commented, “After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline.”

This challenging environment was also highlighted in the CBI’s latest Distributive Trades Survey, with retailers reporting broadly unchanged sales volumes in February while expecting sales to fall this month. CBI Principal Economist Martin Sartorius said, “Whilst retail sales volumes were largely unchanged in the year to February, firms remain pessimistic about their business outlook.”

 

Chancellor receives pre-Budget boost

The latest public sector finance statistics revealed an unexpected budget surplus giving Chancellor Jeremy Hunt a little more leeway as he prepares to deliver his Spring Budget.

Figures released by ONS showed that UK public sector net borrowing (the gap between the country’s overall income and expenditure) returned to a surplus of £5.4bn in January. This figure, which was boosted by the highest self-assessed Income Tax receipts since records began in 1999, was significantly better than economists had been expecting.

As a result, total government borrowing across the first ten months of the current fiscal year now stands at £117bn. While this does still represent a large shortfall by historic standards, the figure is just over £30bn lower than the Office for Budget Responsibility had predicted when it produced forecasts for the Chancellor’s Autumn Statement in November.

This data does therefore appear to provide the Chancellor with a little more wiggle room as he sets out the tax and spending plans he will deliver in the Spring Budget on 15 March. Mr Hunt, however, has played down any suggestions of significant tax cuts recently saying, “It is vital we stick to our plan to reduce debt over the medium term.”

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.

 

All details are correct at the time of writing (01 Mar 2023).

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Love your independent financial adviser

Love your independent financial adviser

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This Valentine’s day you may not be automatically thinking of your finances. Hopefully you have something more interesting to do on 14th February than plan your pension! But mid-February is a great time to build a relationship with an independent financial adviser. In fact we think there are 5 perfect reasons to make a date with the Sheldon Flanders team this month.

We will help you plan for your future

You may receive your state pension later than you think and it might be considerably less than you expect. So if you work with us, the first conversations we have will be about your goals and your plans. When do you want to retire and what do you want to do when you get there? Fewer and fewer of our clients are planning to go from full time work to complete retirement. The majority have some kind of plan to transition between the 2. Maybe that’s reducing from full time to part time hours. Or selling the business but staying on in a non-executive capacity for a year. All of those steps have a financial implication, and we can help you plan those out.

We will help you retire this year

Ok we may not be able to guarantee this, but if you are in your mid 50s and have been saving into a pension for some years, this may be an option. Why not have a conversation and find out if this could be a reality for you?

We’ll save you the work of researching the market

The advantage of working with an independent adviser is that we have an overview of the market. We keep up to date with the vast range of products on offer and we do the research so you don’t have to. We also keep up to date with the ever changing landscape of tax allowances, the regulations around pension contributions and inheritance tax thresholds. So you can be assured that we will find the best solution for you, whatever your circumstances.

We’ll ensure that you can make a positive impact with your money

We know that increasingly our clients are asking intelligent questions about where their money is invested. They want to know if it is making a difference in the world. Social responsibility is more important than ever to many people. For every new client when we research suitable investments for them, we recommend sustainable investments. We will explain these funds clearly to you when we present our recommendations, and are always happy to explain any aspect of the fund and their features. We can focus on investments in, for example, sustainable technology or we can ensure particular industries or countries are excluded from your portfolio.

We care about your small business and your family

We are an independent Midlands based business, and helping other independent business owners plan their wealth and ensure they can pass that wealth on to their family is what we do best.

 

So book a date with us, it may not be the most romantic, but we promise that you will definitely love the results!

 

 

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Economic Review January 2023

Economic Review January 2023

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You can download this update here

UK growth beats expectations

The latest gross domestic product (GDP) statistics show the economy unexpectedly grew in November easing fears that the UK has already slipped into recession.

Data released by the Office for National Statistics (ONS) revealed that the UK economy expanded by 0.1% in November. This figure was higher than any forecast submitted to a Reuters poll of economists with the consensus prediction suggesting the economy would shrink by 0.2% across the month.

ONS said much of the growth was linked to the football World Cup, with pubs and restaurants benefiting as people went out to watch the games. The figures were also boosted by an increase in demand for services in the tech sector.

November’s better than anticipated data makes it more likely that the UK managed to avoid entering recession during the final half of last year. Economists are now typically forecasting that GDP will have flatlined during the fourth quarter of 2022 and thereby dodged the technical definition of a recession.

However, the consensus view does still suggest the UK is likely to record two negative quarters of growth during the first half of this year as consumers continue to struggle with rising food and energy bills, and ongoing industrial action acts as a drag on growth. A recent Reuters poll puts a 75% chance on the UK slipping into recession this year, although any downturn is expected to be relatively shallow.

This view was largely supported by data from the recently released S&P Global Purchasing Managers’ Index. While the closely monitored survey recorded a sixth consecutive monthly decline in UK business activity during January, the scale of the downturn signalled by the data remains relatively modest by historic standards. There was also some positive news from forward-looking indicators, with a jump in business optimism for the year ahead.

 

Inflation expected to fall rapidly

Bank of England (BoE) Governor Andrew Bailey has suggested that a recent easing in the headline rate of inflation could be a sign that “a corner has been turned.”

Data released last month by ONS showed that the Consumer Prices Index (CPI) annual rate – which compares prices in the current month with the same period a year earlier – fell to 10.5% in December. This was the second successive monthly decline since inflation hit a 41-year high of 11.1% in October.

ONS said that easing price pressures for motor fuels and clothing had pushed down December’s headline rate. Dips in these sectors, however, were partially offset by a further sharp rise in the cost of food and non-alcoholic drinks, while restaurant and hotel prices also increased significantly.

Despite the latest fall, the annual rate of CPI inflation clearly remains well above the BoE’s 2% target level. Indeed, when releasing the data, ONS Chief Economist Grant Fitzner pointed out that, “Although we’ve seen a second consecutive easing, it is a fairly modest fall and inflation is still at a very high level with overall prices rising strongly.”

Economists and policymakers, however, are increasingly predicting that inflation has now peaked. Last month, for example, the BoE Governor said inflation looks set to fall “quite rapidly” from the spring as energy prices decrease and that the Bank was more optimistic inflation could be on an “easier path.”

Other data published last month also points to easing inflationary pressures. The latest producer prices data from ONS, for instance, unexpectedly revealed a drop in manufacturers’ input and output prices in December, with both recording the largest monthly fall since April 2020. In addition, a CBI survey found that British factories reported the slowest growth in costs for almost two years during the three months to January.

 

Markets (Data compiled by TOMD)

Major global indices closed January in positive territory. As the month drew to a close, investors were looking ahead to the Federal Reserve and Bank of England monetary policy decisions in early February.

In the UK, the FTSE 100 ended January on 7,771.70, a gain of 4.29% in the month. The domestically focused FTSE 250, more closely correlated to the UK economy, closed the month up 5.31% on 19,853.45, while the FTSE AIM closed January on 867.82, a monthly gain of 4.39%. UK markets were impacted at month end after the International Monetary Fund’s forecast detailed lagging growth versus G7 counterparts.

Across the pond, the Dow Jones index closed January up 2.83% on 34,086.04, while the NASDAQ closed the month up 10.68% on 11,584.55, amid a flurry of corporate earnings and the imminent Fed policy meeting. On the continent, the Euro Stoxx 50 closed the month on 4,163.45, registering a gain of 9.75%. In Japan, the Nikkei 225 closed January up 4.72%, on 27,327.11.                                        

On the foreign exchanges, the euro closed the month at €1.13 against sterling. The US dollar closed at $1.23 against sterling and at $1.08 against the euro.

Gold closed the month trading at around $1,923 a troy ounce, a monthly gain of around 6.0%. The gold price has risen as demand for the precious metal holds firm in the face of economic uncertainty. Brent crude closed the month trading at around $85 a barrel, a small monthly gain of 0.77%. The next OPEC+ (Organization of the Petroleum Exporting Countries and allies) producer meeting in early February will provide clarity on the trajectory of global supplies.

 

Index                              Value (31/01/23)                 Movement since 31/12/22

FTSE 100                        7,771.70                                  +4.29%                               

FTSE 250                       19,853.45                                +5.31%                               

FTSE AIM                      867.82                                      +4.39%

Euro Stoxx 50              4,163.45                                  +9.75%                               

NASDAQ Composite  11,584.55                                +10.68%                                           

Dow Jones                    34,086.04                                +2.83% 

Nikkei 225                    27,327.11                                +4.72%                                                                                           

 

Pay growth picks up pace

While the latest earnings statistics revealed that wages are now rising at their fastest rate in over 20 years, the data also showed that pay growth is still failing to keep up with the rise in prices.

According to figures released last month by ONS, average weekly earnings excluding bonuses rose at an annual rate of 6.4% in the three months to November. This figure represents the strongest growth in regular pay since records began in 2001, excluding the coronavirus period when the data was distorted by workers returning from furlough.

However, despite this historically high level of nominal earnings growth, the real value of people’s wages continues to fall, with regular pay levels actually down by 2.6% when adjusted for inflation. Although this decline is slightly smaller than the 3.0% fall in real regular pay reported in Q2 2022, it still represents one of the largest real declines in wages ever recorded.

The latest data also highlighted the wide disparity in pay growth for private sector and public sector workers. In the three months to November, private-sector regular pay levels rose by an average annual rate of 7.2% compared with 3.3% across the public sector.

 

Retail sales suffer December decline

Official data shows that sales volumes fell in December, capping a difficult year for the retail sector, while more recent survey evidence suggests conditions remain challenging.

The latest ONS retail sales statistics revealed that total sales volumes in December unexpectedly fell by 1.0% from the previous month and by a record 5.8% compared with December 2021. Across the whole year, sales volumes declined by 3.0% compared with 2021, the worst full-year performance since records began in 1997.

While rising prices did see many retailers report relatively strong festive sales figures in monetary value terms, the official data shows that high inflation has resulted in shoppers effectively getting less for their money. ONS also noted that feedback from retailers suggested consumers were “cutting back on spending because of increased prices and affordability concerns.”

Survey data suggests sales volumes continued to slide in the new year, with the CBI’s latest Distributive Trades Survey showing a net balance of retailers reporting year-on-year sales growth falling to -23% in January. CBI Principal Economist Martin Sartorius said, “Retailers began the new year with a return to falling sales volumes, as the sector continues to face the twin headwinds of rising costs and squeezed household incomes.” 

All details are correct at the time of writing (01 Feb 2023).

 

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

 

 

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

Your Finance Matters Winter 2023

Your Finance Matters Winter 2023

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You can download this update here

Investment focus for the new year

By any comparison, the past 12 months have been tough for investors with a series of shocks impacting markets and, as 2023 dawns, uncertainties remain. One constant on the investment horizon, though, is the requirement to be strategic with your portfolio. A sound strategy based on careful planning; making purposeful decisions, based on thorough research and reliable processes, will stand you in good stead.

Last year saw markets struggle with bouts of volatility as a combination of high inflation, rising interest rates and the war in Ukraine brought about challenging headwinds and markets sought a stable footing. As a result, fund inflows slowed while cash as a percentage of investors’ portfolios rose, prompting warnings that investors need to be aware of limitations to the Financial Services Compensation Scheme (FSCS) for cash balances.

Identifying opportunities

With large amounts of money on the sidelines, using our knowledge, we aim to identify opportunities and position portfolios to benefit from recession-resistant companies in which we have conviction. Those who still have the capacity to invest should consider adding back to their portfolios in order to take advantage of any potential low valuations.

Battling inflation

Investors also need to be aware of the erosive impact of inflation on cash-based savings. In the current economic climate, anyone holding a significant proportion of their assets in cash, even with savings rates improving, will inevitably see the value of their wealth decline in real terms. In essence, equities offer a better potential defence in the battle with inflation.

Trust in our process

Experienced investor or not, staying calm during periods of market turmoil is never easy but adapting your mindset and focusing on investment strategy rather than market sentiment is vital. Investing in the stock market does clearly involve a level of risk but the adoption of a carefully considered strategy based on sound financial planning principles undoubtedly offers investors the best chance of success.

Tax year end reminder

As the end of the tax year approaches, a prime consideration should be how external factors such as reduced or frozen allowances, together with high inflation, could impact your finances and what action you need to take before 5 April 2023.

If you are affected by the impending changes to Dividend Tax or Capital Gains Tax (CGT) announced in the Autumn Statement, have you considered investing up to £20,000 this tax year in a stocks and shares Individual Savings Account (ISA)? From April 2023, the Dividend Allowance will be cut from £2,000 to £1,000 and then fall further to £500 from April 2024.

In addition, the annual CGT exemption will fall from £12,300 to £6,000 next tax year and then to £3,000 the following tax year. Dividends received on shares within an ISA are tax free and won’t impact your Dividend Allowance. Also, any profit you make when selling investments in your stocks and shares ISA is free of CGT.

And don’t forget your pension

Both the Annual Allowance and Lifetime Allowance are frozen, at £40,000 and £1,073,100 respectively. As these allowances haven’t increased with inflation, it effectively means those saving to the maximum extent possible with tax concessions can save less in real terms each year.

In the news

Women hold their nerve

Recent research1 reveals women are more likely to hold their nerve and avoid crystallising a loss when the market dips. Almost half of men (48%) have sold investments at a loss when they’ve dropped in value, in an attempt to stem their losses, while just 38% of women have done the same. Such impatience could prove to be costly. The research estimates (based on £10,000 invested in 1992, adding 10% of average salary and reinvesting dividends until 2022) that the real cost of ‘impatient’ investing over 30 years could amount to nearly £200,000!

Where is the best place to retire?

Retiring abroad is a much-desired goal for many, particularly for an improved lifestyle. Croatia currently tops the list of the best countries to retire in, due to a better cost of living when compared with the UK – rent costs and the price of day-to-day living is nearly half that versus the UK2.

Croatia also scores highly due to the ease of getting there from the UK, with relatively cheap average flight costs meaning that friends and family can visit and flying back to the UK is also convenient. (Relocation to some countries may mean forgoing future annual increases to State Pension.)

1Alliance Trust, 2022

2Penfold, 2022

Global economic growth in 2023

The International Monetary Fund (IMF)3 has predicted a challenging 2023, reducing growth expectations and forecasting economic contraction in a third of the world, in its latest World Economic Outlook entitled ‘Countering the Cost-of-Living Crisis.’

With the cost-of-living crisis ‘tightening financial conditions in most regions’, the outlook suggests that in order to restore price stability, monetary policy should stay the course and fiscal policy should aim to alleviate pressures ‘while maintaining a sufficiently tight stance.’

The global growth rate for 2023 has been revised down from previous expectations to 2.7%. This reflects ‘significant slowdowns’ for the largest economies as America’s gross domestic product (GDP) contracted in the first half of 2022, followed by the Euro area’s contraction in the second half of last year, and prolonged COVID-19 outbreaks and lockdowns in China. Closer to home, the IMF predict growth of 3.6% in 2022 and 0.3% in 2023 for the UK.

3IMF, 2022

Dividend update

According to the latest Dividend Monitor4, driven by sterling weakness, 2022 headline payouts are expected to rise to £97.4bn, up 11.0% on an adjusted basis, with underlying dividends expected to rise 13.4% to £87.2bn. The provisional forecast for UK dividends in 2023 anticipates a slight drop in headline dividends but modest underlying growth.

Looking ahead, Ian Stokes, Managing Director of Corporate Markets UK and Europe at Link Group commented, “For 2023, we expect a further reduction in mining dividends and likely lower one-off special dividends but outside the mining sector there is still room for payouts to rise, even with a weakening economy. Our provisional 2023 forecast suggests a slight drop in headline dividends to £96bn and a slight increase in the underlying total to £89bn. This implies no change in our expectation that UK payouts will only regain their pre-pandemic highs some time in 2025.”

4Link Group, 2022

Giving your children a helping hand

With the current generation of graduates typically leaving university with a mountain of debt, it is perhaps unsurprising that so many parents are now looking to ease the burden by investing on their children’s behalf.

University challenge

Government statistics show the average debt accumulated by a university student is currently around £45,000. Thankfully, graduates only start repayments when their earnings hit a certain threshold and, at the moment, loans are written off after 30 years however much debt remains. As a result, some students will never pay back their loans in full.

Increasing debt burden

Many students, though, do repay a significant amount of their debt, and recent reforms to the loans system means many more will do so in the future – government forecasts suggest that, from next year, over half of students will repay their loans in full. This inevitably places an even greater burden on future graduates’ shoulders, both as they enter the world of work and, potentially, throughout their entire careers.

Saving for their future

Most parents are keen to help their children fund university and many do so by investing on their behalf through a stocks and shares Junior ISA (JISA). While there are risks with stock market investments, historically they have performed better than cash-based savings and consistently delivered above-inflation returns. The annual JISA allowance is currently £9,000 per child which, for anyone who starts saving early, can grow to a sizeable tax-free lump sum. Smaller amounts can mount up too, particularly when combined with contributions from other family members.

Peace of mind

Investing on a child’s behalf can make a huge difference to their future, whether they decide to go to university or put the money towards something else. It also provides parents with the comfort of knowing they are giving their children the best possible start to adult life.

Take control now to beat the tax chill

Following his controversial ‘stealth tax’ Statement in November, the Chancellor made a raft of key personal taxation and pension announcements.

The government pledged its commitment to the pensions Triple Lock, which will increase the State Pension in line with September’s Consumer Prices Index (CPI) rate of 10.1%. This means that the value of the basic State Pension will increase in April 2023 from £141.85 per week to £156.20 per week, while the full new State Pension will rise from £185.15 to £203.85 per week.

Then came some ‘stealth’ announcements set to pull people into paying higher rates of tax, more people paying IHT, a cut to tax-free earnings from dividends and a reduction in CGT allowances.

In addition to the Dividend Allowance and CGT allowance reductions (as per ‘Tax year end reminder’ article) and IHT freeze (see page 4), other key personal tax announcements from the Scottish

Budget included:

  • The Income Tax additional rate threshold (ART) at which 45p becomes payable will be lowered from £150,000 to £125,140 from 6 April 2023. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland. The ART for savings and dividend income will apply UK-wide. This move is set to push 250,000 more people into this band
  • The Income Tax Personal Allowance and higher rate threshold are to remain at current levels – £12,570 and £50,270 respectively – until April 2028 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved).

With an increasing number of people likely to be impacted by these changes, we can’t stress enough the importance of tax year end planning. Although some of these changes don’t come in with immediate effect, it is vital to ensure you are in the best place possible to take advantage of any allowances, exemptions and reliefs available this year and to prepare for the changes that come in over the next few years. With plenty to consider and factor into your financial plan, valuable financial advice remains central to achieving your goals and aspirations.

It pays to think about estate planning

Inheritance Tax (IHT) is once again in the spotlight following the Chancellor’s decision to freeze IHT thresholds for a further two years until April 2028. Extending the frozen thresholds, together with rising house prices and soaring inflation mean that more estates are likely to be affected.

IHT receipts on an upwards trend

The latest IHT figures released in October make interesting reading. Total HM Revenue and Customs (HMRC) receipts for April 2022 to September 2022 were £3.5bn, £0.4bn higher than in the same period last year.

Not just a tax on the very wealthy

IHT is a tax payable on all your assets when you die and potentially on some gifts you make during your lifetime. If the estate is liable for IHT, it is usually payable at 40%. These days, you don’t have to be hugely wealthy to be affected by IHT – the hated tax can cost your estate thousands of pounds when you die.

A reminder of the thresholds

An individual’s current threshold, or nil-rate band, is £325,000. A couple (married or civil partners) has £650,000. Any unused nil-rate band can be passed to the surviving spouse or civil partner on death.

In 2017 the government introduced an additional nil-rate band when a residence is passed on death to a direct descendant. The main residence nil-rate band is £175,000 and when added to the existing threshold of £325,000 could potentially give an overall allowance for individuals of £500,000.

To reduce the amount of IHT payable, many families consider giving assets away during their lifetime. Some gifts will be automatically free from IHT; for example, £3,000 each financial year, certain wedding gifts and gifts to charities.

Getting the right balance between gifting money during your lifetime and ensuring you have enough for your future years requires careful planning. Expert planning can legitimately mitigate IHT, meaning you can pass on assets to your family as you’d intended.

Time for a retirement reboot?

Nowadays there are more choices open to you than ever before. This means there are more things you need to consider and have a plan for, like how to manage your finances to provide the income you’ll need to live on, how you’ll transition into full retirement and what lifestyle you want to enjoy in your later years.

We’re all leading busy lives and with cost-of-living financial pressures intensifying, it’s understandable if retirement plans have been placed on the back burner. If you are keen to revisit your plans and get them back on track so you can relax and fully enjoy your retirement years, the new year is the perfect time to act, so please do get in touch.

 

If you would like advice or information on any of the areas highlighted in this newsletter, please get in touch, we’d be delighted to help you consider your personal financial circumstances.

 

It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details.

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.

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. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.

The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning.

All details are correct at time of writing – December 2022.

 

Financial health is financial wealth.

If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
Call us on 01332913006

 

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