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Economic Review October 2023 – Inflation rate holds steady

Economic Review October 2023 – Inflation rate holds steady

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Download your copy here

 

The Bank of England (BoE) Governor has described the latest batch of inflation statistics as “quite encouraging,” adding that he expects a “noticeable drop” in the headline rate when the next set of data is released later this month.

 

Figures recently published by the Office for National Statistics (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 – held steady at 6.7% in September. This ended a run of three consecutive monthly declines and came in slightly ahead of analysts expectations’ of a further 0.1% fall.

 

ONS pointed out that the figures did include the first monthly decline in food price levels for two years. However, a sharp rise in fuel costs between August and September was the main factor that prevented the CPI annual rate from declining again. Despite remaining unchanged, though, September’s update does leave CPI below the level forecast by the BoE in early August.

 

The latest release did also report a fall in core inflation, which excludes volatile elements such as energy, food, alcohol and tobacco, although this decrease was again less than economists had predicted. This measure of inflation, which is typically viewed as a better guide to longer-term price trends, fell to 6.1% in September from 6.2% in August.

 

Commenting on the consumer prices data release in an interview with the Belfast Telegraph, BoE Governor Andrew Bailey said, “It was not far off what we were expecting. Core inflation fell slightly from what we were expecting and that’s quite encouraging.” The Governor also stressed that he expects to see a “noticeable drop” in the CPI rate when the next set of figures are published in mid-November as last year’s sharp hike in energy prices drops out of the annual comparison.

 

 

Economy stages partial rebound

 

Growth statistics released last month by ONS showed the UK economy returned to growth in August following a sharp decline in July, although forward-looking indicators continue to suggest the outlook remains uncertain.

 

According to the latest gross domestic product (GDP) figures, the UK economy grew by 0.2% in August following a downwardly revised fall of 0.6% in July. ONS said August’s modest bounce back was partly driven by the education sector, which recovered from two days of industrial action the previous month, along with a boost from computer programmers and engineers.

 

While analysts typically described the latest GDP data as ‘lacklustre,’ August’s figures are thought to have reduced the possibility of a recession beginning as early as the July to September period. Indeed, ONS noted that the economy would only need to have grown by 0.2% during September to avoid it contracting across the third quarter as a whole.

 

Data from the latest S&P Global/CIPS UK Purchasing Managers’ Index released towards the end of last month, however, does suggest that business activity across the private sector continues to weaken. The preliminary composite headline Index stood at 48.6 in October, a marginal increase from September’s figure of 48.5, but below the 50 threshold that denotes a contraction in private sector output for the third month running.

 

Commenting on the survey’s findings, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “The UK economy continued to skirt with recession in October, as the increased cost of living, higher interest rates and falling exports were widely blamed on a third month of falling output. The overall pace of decline remains only modest, but gloom about the outlook has intensified in the uncertain economic climate, boding ill for output in the coming months. A recession, albeit only mild at present, cannot be ruled out.”

 

 

Markets (Data compiled by TOMD)

 

As October drew to a close, investors focused on major central bank meetings with the Bank of England and Federal Reserve due to meet in early November.

 

In the UK, the FTSE 100 closed October on 7,321.72, a loss of 3.76%. At month end losses in some mining and energy stocks weighed, impacted by declines in commodity prices following weaker-than-expected factory activity data in China. The domestically-focused FTSE 250 closed down 6.54% on 17,083.05, while the FTSE AIM closed the month on 679.85, a loss of 6.38%. On the continent, the Euro Stoxx 50 ended October on 4,061.12, a loss of 2.72%.

 

At month end, Asian equities struggled as disappointing activity data from China reignited some concerns over the resilience of the world’s second largest economy. In Japan the Nikkei 225 closed the month on 30,858.85, down 3.14%.

 

A raft of new data has highlighted resilience in the US economy. Comments from Federal Reserve Chairman Jerome Powell will be closely watched as an indicator of how long interest rates are likely to remain elevated. The Dow Jones Index closed the month down 1.36% on 33,052.87, while the NASDAQ closed the month down 2.78% on 12,851.24.

 

On the foreign exchanges, the euro closed the month at €1.14 against sterling. The US dollar closed at $1.21 against sterling and at $1.05 against the euro.

 

Safe haven demand as a result of the Middle Eastern conflict saw gold prices trading higher in the month. Gold closed October trading at around $1,996 a troy ounce, a monthly gain of around 6.76%. With traders wary of any new developments in the conflict and concerns over slowing fuel demand in China weighing, Brent crude closed the month trading at around $85, a loss over the month of 7.41%.

 

 

Index                                                  Value (31/10/23)                           Movement since 29/09/23

 

FTSE 100                                            7,321.72                                                           -3.76%                               

FTSE 250                                           17,083.05                                                         -6.54%                               

FTSE AIM                                          679.85                                                               -6.38%

Euro Stoxx 50                                  4,061.12                                                           -2.72%

NASDAQ Composite                      12,851.24                                                         -2.78%                               

Dow Jones                                        33,052.87                                                         -1.36% 

Nikkei 225                                        30,858.85                                                         -3.14%

 

 

Jobs market continues to cool

 

Last month’s release of labour market statistics suggests there has been a further softening in the UK jobs market, although earnings data did reveal average pay is now rising above inflation for the first time in almost two years.

 

The latest figures released by ONS were dubbed ‘experimental estimates’ produced under a new calculation that attempts to account for low response rates to the labour force survey. The new data showed that, although the unemployment rate stayed unchanged at 4.2% during the June to August period, the overall level of employment fell and the rate of economic inactivity rose.

 

In addition, the estimated total number of job vacancies dropped by 43,000 during the three months to September, the 15th consecutive reported decline. This reduced the number of vacancies to a two-year low of 988,000, although this figure is still significantly above pre-pandemic vacancy levels recorded in early 2020.

 

The latest earnings figures also revealed that regular pay rose at an annual rate of 7.8% in the June to August period, higher than the average inflation rate over the same three months. Furthermore, data revisions meant that wage growth actually outpaced inflation in the three months to July for the first time since October 2021.

 

 

 

Retail sales in autumnal fall

 

Official retail sales statistics reported a sharper than expected decline in sales volumes during September, while more recent survey evidence suggests the current trading environment remains extremely challenging.

 

Data published last month by ONS revealed that total retail sales volumes fell by 0.9% in September, a much larger decline than the 0.2% fall predicted in a Reuters poll of economists. ONS said it had been ‘a poor month for clothing stores’ with the unseasonable warm autumnal conditions reducing sales of colder weather gear, while the quick pace of price rises had deterred shoppers from buying ‘non-essential goods.’

 

The latest CBI Distributive Trades Survey suggests sales remained weak last month, with retailers reporting the joint-worst level of sales volumes for October since records began in 1983. The survey also found that retailers do not anticipate a turnaround in fortunes this month, with cost-of-living concerns and higher interest rates expected to continue weighing on consumer spending.

 

Commenting on the findings, CBI Principal Economist Martin Sartorius said, “As the festive period approaches, the retail sector remains in a perilous position. While slowing inflation should help to bolster households’ income in the coming months, retailers will continue to face headwinds from higher energy and borrowing costs.” 

 

 

 

All details are correct at the time of writing (01 November 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 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

 

Autumn Statement 2022

Autumn Statement 2022

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You can download this update here

 

“We will face into the storm”

On 17 November, Chancellor of the Exchequer Jeremy Hunt delivered his fiscal plan to “tackle the cost-of-living crisis and rebuild our economy” stating that the government’s three priorities are “stability, growth and public services.” The Chancellor struck a defiant tone during the key fiscal event, saying he was “taking difficult decisions” that would deliver a “balanced path to stability” before outlining a package of measures equating to a consolidated total of around £55bn in spending cuts and tax rises.

Economic forecasts

Mr Hunt began his statement by stressing that the country is facing “unprecedented global headwinds” before unveiling updated economic projections from the Office for Budget Responsibility (OBR) which confirm the UK is now officially in recession. The Chancellor did, however, point out that the independent public finance analyst believes the downturn will be relatively shallow, if comparatively long. The revised GDP figures suggest the UK economy will grow by 4.2% this year, but then shrink by 1.4% next year before returning to growth in 2024.

The Chancellor also announced revised OBR forecasts which suggest inflation will peak in the current quarter and then drop sharply over the course of next year. The OBR’s updated forecast though does suggest the eroding impact of inflation will reduce living standards by 7% in total over the two financial years to 2023-24, wiping out the previous eight years’ growth, while unemployment is expected to rise from 3.6% today to 4.9% by 2024.

Public finances

During his speech, Mr Hunt announced he was introducing two new fiscal rules and that the plan he was announcing met both of them. His first rule states that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period, while the second states that annual public sector borrowing, over the same time period, must be below 3% of GDP.

The Chancellor went on to reveal updated public finance forecasts, which predict government borrowing in the current fiscal year will rise to £177bn before falling back to £69bn (2.4% of GDP) in 2027-28. This means the medium-term fiscal outlook has materially worsened since the previous OBR forecast produced in March, which had predicted borrowing of £32bn by 2026-27. The OBR said this deterioration in the public finances was due to a weaker economy, higher interest rates and higher inflation.

Personal taxation, wages and pensions

The Chancellor went on to make a raft of key personal taxation, wages and pension announcements.

The government will increase the National Living Wage for individuals aged 23 and over by 9.7% from £9.50 to £10.42 an hour, effective from 1 April 2023.

The commitment to the pensions Triple Lock remains, 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. 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).

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.

The Dividend Allowance will be reduced from £2,000 to £1,000 from April 2023, and to £500 from April 2024.

The annual Capital Gains Tax exemption will be reduced from £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024.

The change to Stamp Duty Land Tax threshold for England and Northern Ireland, which was announced on 23 September 2022, remains in place until 31 March 2025. The nil rate threshold is £250,000 for all purchasers and £425,000 for first-time buyers.

In addition:

  • 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)
  • Inheritance Tax 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 for a further two years until April 2028
  • National Insurance contributions (NICs) Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) frozen for a further two years until April 2028
  • The 2022-23 tax year 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
  • The Lifetime Allowance for pensions remains at its current level of £1,073,100 until April 2026.

Business measures

  • The National Insurance Secondary Threshold is frozen at £9,100 until April 2028
  • The VAT registration threshold is fixed at £85,000 for two years from April 2024
  • R&D tax credits to be reformed to ensure public money is spent effectively and best supports innovation
  • Businesses making extraordinary profits due to external factors are required to contribute more, including those in the oil and gas sector – the Energy Profits Levy is now extended to the end of March 2028, and the rate is increased by 10 percentage points to 35% from 1 January 2023
  • A new temporary 45% levy will be introduced for electricity generators from 1 January 2023
  • A package of targeted support to help with business rates costs worth £13.6bn over the next five years
  • The Annual Investment Allowance (AIA) is to be set at its highest ever permanent level of £1m from 1 April 2023.

Cost-of-living support

The Energy Price Guarantee (EPG) per unit will be maintained through the winter, in effect limiting typical energy bills to £2,500 per year. From April 2023 the EPG will rise to £3,000 per year, ending March 2024. The government will double to £200 the level of support for households that use alternative fuels, such as heating oil, liquefied petroleum gas, coal or biomass.

The Chancellor announced that there will be targeted cost-of-living support measures for those on low incomes, disability benefits and pensions. In 2023-24 an additional Cost of Living Payment of £900 will be provided to households on means-tested benefits, £300 to pensioner households and £150 to individuals on disability benefits. Rent increases in the social housing sector will be capped at 7% in the next financial year.

Education, health and social care

To promote education and boost the UK’s health and social care system, Mr Hunt announced:

  • An additional £3.3bn per year for the NHS in the 2023-24 and 2024-25 tax years
  • Up to £2.8bn in 2023-24 and £4.7bn in 2024-25 for the social care sector
  • An additional £2.3bn per year for England’s core schools budget in 2023-24 and 2024-25
  • An extra £1.5bn, £1.2bn and £650m have been pledged for hospitals and schools in Scotland, Wales and Northern Ireland, respectively.

Priorities for growth

Next, the Chancellor moved on to outline his three priorities for economic growth: energy, infrastructure and innovation. Key announcements included:

  • A new Sizewell C nuclear power plant in Suffolk
  • New funding of £6bn from 2025 to meet the government’s objective to reduce energy consumption from buildings and industry by 15% by 2030
  • Northern Powerhouse Rail and HS2 to go ahead as planned
  • A commitment to proceed with round two of the levelling up fund, at least matching the £1.7bn value of round one
  • The removal of import tariffs on over 100 goods used by UK businesses
  • An increase in public funding for R&D to £20bn by 2024-25.

Other key points

  • Vehicle Excise Duty chargeable on electric cars, vans and motorcycles from April 2025
  • Local authorities in England given additional Council Tax flexibility by modifying the referendum limit for increases
  • Review of the Energy Bill Relief Scheme, findings to be published by 31 December 2022
  • The Secretary of State for Work and Pensions will publish the government’s Review of the State Pension Age in early 2023
  • Defence spending to be at least 2% of national income
  • Overseas aid spending to be kept at 0.5% for next five years.

Closing comments

Jeremy Hunt signed off his announcement saying, “There is a global energy crisis, a global inflation crisis and a global economic crisis, but the British people are tough, inventive and resourceful. We have risen to bigger challenges before. We aren’t immune to these headwinds but with this plan for stability, growth and public services, we will face into the storm… I commend this statement to the House.”

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 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.

All details are believed to be correct at the time of writing (17 November 2022)

 

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If you want to be financially healthy, please book an initial meeting and let’s discover if we can help you
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Economic Review October

Economic Review October

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You can read a pdf version of this update here

Chancellor’s fiscal statement delayed

The government has pushed back the date of its much-anticipated Medium-Term Fiscal Plan in order to ensure it is based on the “most accurate” economic forecasts available.

Chancellor Jeremy Hunt had been due to deliver his first fiscal statement detailing how the government plans to repair the country’s public finances on 31 October, but following Rishi Sunak’s appointment as Prime Minister, it was decided to move the announcement back by two-and-a-half weeks.

The fiscal event, which will now be delivered on 17 November, has also been upgraded to a full Autumn Statement, paving the way for wider taxation policies to be announced. The Chancellor’s tax and spending plans will also be accompanied by updated economic growth and borrowing forecasts produced by the independent Office for Budget Responsibility (OBR).

When announcing the postponement, Mr Hunt said, “Our number one priority is economic stability and restoring confidence that the United Kingdom is a country that pays its way. I’m willing to make choices that are politically embarrassing if they’re the right thing to do for the country, if they’re in the national interest.”

Financial markets were relatively calm after the news broke with analysts describing the delay as understandable, and both sterling and government bond prices were little changed by the announcement. The International Monetary Fund, which had criticised the previous Chancellor’s unfunded tax cuts, offered support to the incoming Prime Minister, with the organisation’s Chief Kristalina Georgieva suggesting Rishi Sunak will bring “fiscal discipline” to the UK.

The Chancellor has been keen to demonstrate his fiscal credentials, reiterating his commitment to “debt falling over the medium term.” This suggests the government will have some tough tax and spending decisions to make in order to fill the budget black hole, with Treasury officials warning people “should not underestimate the scale of this challenge.”

Inflation back at 40-year high

Soaring food prices have pushed the UK inflation rate back to a four-decade high, fuelling expectations of a sharp interest rate hike at the next Bank of England (BoE) Monetary Policy Committee (MPC) meeting in early November.

Data released last month by the Office for National Statistics (ONS) showed that the headline rate of inflation rose to 10.1% in September after dipping to 9.9% in August. This was slightly above analysts’ expectations and took consumer price inflation back to a 40-year high previously hit in July.

The food and non-alcoholic drinks sector was the biggest upward contributor to September’s rise, with prices in this category recording their biggest jump since April 1980. ONS said the price of most key items in an average household’s food basket rose, including fish, sugar, fruit and rice, as the war in Ukraine and recent weakness in the pound made both food products and ingredients more expensive.

This further jump in inflation has placed additional pressure on the BoE to raise interest rates when its next MPC meeting concludes on 3 November. Speaking at a G30 event in Washington in mid-October, Bank Governor Andrew Bailey acknowledged rates may need to rise by more than the BoE had previously envisaged. The Governor said, “We will not hesitate to raise interest rates to meet the inflation target. And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”

While the Chancellor’s decision to delay his fiscal statement until after the Bank’s November meeting will make policymakers’ deliberations more difficult, analysts still expect them to take decisive action. Indeed, over half of respondents in a recent Reuters poll of economists expect rates to rise by 0.75% in November, with most of the others predicting a 1% increase.

Markets (Data compiled by TOMD)

As October drew to a close, UK stock markets benefited from a Halloween rebound. The blue-chip FTSE 100 index closed the month at a five-week high, up 2.91% to 7,094.53, buoyed by gains across Britain’s high street banks, amid expectations of an imminent Bank Rate rise. The FTSE 250 registered a gain of 4.20%, while the FTSE AIM ended October with a small loss of 0.03%.

On the continent, the Euro Stoxx 50 closed the month up 9.02%. Eurozone annual inflation reached a record high of 10.7% in October, ahead of analyst expectations of 10.3%. In Japan, the Nikkei 225 closed October on 27,587.46, up 6.36%. The Bank of Japan has chosen to maintain ultra-low interest rates, bucking the tightening trend among global central banks.

Across the pond, earnings season is in full swing and US markets are awaiting the highly anticipated Federal Reserve rates meeting in early November. Following a challenging September, markets made a comeback in October, with the Dow closing the month up 13.95% on 32,732.95, its best monthly advance since January 1976. Meanwhile the tech-orientated Nasdaq closed October on 10,988.15, up 3.90%.

On the foreign exchanges, the euro closed at €1.16 against sterling. The US dollar closed the month at $1.14 against sterling and at $0.98 against the euro.

Gold is currently trading at around $1,639 a troy ounce, a loss of 1.96% on the month. Pressure from anticipated rate hikes, rising yields and the relative strength of the dollar are weighing on the precious metal. Brent Crude closed the month trading at around $91 a barrel, a gain of 7.05%, following a decision by the Organization of the Petroleum Exporting Countries (OPEC+) alliance to make sizable cuts to output from November.

Index                                   Value (31/10/22)                           Movement since 30/09/22

FTSE 100                             7,094.53                                             +2.91%                               

FTSE 250                             17,889.93                                           +4.20%                

FTSE AIM                           806.13                                                  -0.03%                

Euro Stoxx 50                   3,617.54                                               +9.02%                

NASDAQ Composite       10,988.15                                            +3.90%                

Dow Jones                         32,732.95                                             +13.95%                            

Nikkei 225                         27,587.46                                              +6.36%

 

UK economy unexpectedly shrinks

Growth statistics released by ONS show the economy unexpectedly contracted in August while forward-looking indicators point to further deterioration following the country’s recent political and market turmoil.

According to the latest gross domestic product (GDP) figures the UK economy shrank by 0.3% in August with output in both the production and services sectors falling back. ONS noted that a number of customer-facing businesses, including retail, hairdressers and hotels, had all fared ‘relatively poorly’ during the month.

August’s figure was significantly weaker than analysts’ expectations, with the consensus from a Reuters poll of economists pointing to zero growth. July’s GDP figure was also revised down to 0.1% from a previous estimate of 0.2%; as a result, output across the three months to August as a whole fell by 0.3%.

Analysts have warned that September could see an even sharper decline, partly due to the extra Bank Holiday to mark the Queen’s funeral and reduction in business opening hours during the period of mourning. Recent survey evidence also suggests the downturn is set to intensify, with October’s preliminary headline reading of S&P Global’s Purchasing Managers’ Index showing the pace of economic decline ‘gathered momentum after the recent political and financial market upheavals.’               

Unemployment rate falls again

The latest labour market statistics showed that the rate of unemployment in the UK declined to its lowest level in nearly 50 years, driven by an increase in the number of people leaving the workforce.

ONS figures showed the unemployment rate fell to 3.5% in the three months to August, its lowest level since December to February 1974. This decline, however, was due to an increase in the number of working-age adults who are neither working nor looking for work.

The economic inactivity rate, which measures the proportion of 16 to 64-year-olds who are not in the labour force, rose to 21.7% in the June to August period, an increase of 0.6 percentage points from the previous quarter. This rise was partly driven by an increase in student numbers, as well as a rise in the number of people suffering with a long-term illness, which rose to a record high.

This resulted in the ratio of unemployed people to job vacancies dropping to a record low, despite the latest data revealing a decline in the total number of vacancies. ONS noted that the fall in vacancies was due to a number of employers reducing recruitment ‘due to a variety of economic pressures.’

All details are correct at the time of writing (01 Nov 2022).

Contact us to talk about how this announcement affects your investments

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

 

Economic Update September: Mini budget edition

Economic Update September: Mini budget edition

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You can read a pdf version of this update here

A day after Bank Rate rose from 1.75% to 2.25%, Chancellor Kwasi Kwarteng delivered his first statement on 23 September, outlining a series of tax cuts and measures aimed at boosting economic activity and growth.

Moving straight to the pressing matter of energy costs, Mr Kwarteng reiterated steps taken to support families and businesses, including the Energy Price Guarantee, the Energy Bill Relief Scheme and the Energy Markets Financing Scheme.

With a keen growth focus, the Chancellor professed, “We need a new approach for a new era,” before announcing a Growth Plan built around three key priorities: reforming the supply-side of the economy, maintaining a responsible approach to public finances and cutting taxes to boost growth. A ‘Medium-Term Fiscal Plan’ will be outlined in the coming months and the Office for Budget Responsibility (OBR) will be publishing an economic and fiscal forecast before the end of 2022. In the meantime, the government has set a target of reaching a 2.5% trend growth rate for the UK economy, with a tax simplification theme front and centre. The key announcements were:

National Insurance

A reversal of last April’s National Insurance contribution rise was confirmed by the government on 22 September. The 1.25 percentage point increase will be reversed from 6 November. The planned Health and Social Care Levy, due to replace the National Insurance rise as a new standalone tax from April 2023, has also been cancelled.

Stamp Duty Land Tax (SDLT)

The Chancellor announced a reduction in SDLT in England and Northern Ireland, raising the residential nil-rate threshold from £125,000 to £250,000, with immediate effect, and First Time Buyers’ Relief from £300,000 to £425,000. He also increased the maximum amount that an individual can pay for a home, while remaining eligible for First Time Buyers’ Relief, from £500,000 to £625,000. As SDLT is devolved in Scotland and Wales, the Scottish and Welsh Governments will receive funding through an agreed fiscal framework to allocate as they see fit.

Income Tax

The basic rate of Income Tax will be cut to 19% in April 2023 – one year earlier than previously planned. At present, people in England, Wales and Northern Ireland pay 20% on annual earnings between £12,571 and £50,270; different rates apply in Scotland. The highest rate of Income Tax (the ‘additional rate’ paid at 45% by those earning over £150,000) will be abolished. From April 2023 there will be a single higher rate of Income Tax of 40%.

Dividend Tax

The government is reversing the 1.25 percentage point increase in Dividend Tax rates applying UK-wide from 6 April 2023, so the ordinary and upper rates of Dividend Tax will revert to 7.5% and 32.5% respectively.

Business measures

  • The planned rise in Corporation Tax to 25% in 2023 will not go ahead; the rate will remain at 19%
  • The Annual Investment Allowance, which is the amount that companies can invest tax free, will be made permanent and remain at £1m
  • The IR35 rule reforms which govern off-payroll working will be repealed from 6 April 2023
  • The government intends to establish new Investment Zones in 38 areas in England, providing businesses with tax incentives and reduced regulation, such as fast-tracked planning applications, to drive growth and encourage investment. There are plans to expand investment zones across Scotland, Wales and Northern Ireland
  • The cap on bankers’ bonuses has been lifted
  • Increasing the generosity and availability of the Seed Enterprise Investment Scheme (SEIS) and Company Share Option Plan (CSOP) from April 2023.

Other announcements included:

  • Bringing forward reform of the pensions regulatory charge cap
  • Alcohol duty rates will be frozen from 1 February 2023
  • Plans to reform the infrastructure planning system and to prioritise 138 key projects
  • Universal Credit rules will be tightened, leading to a reduction in benefits if people don’t fulfil job search commitments
  • VAT-free shopping scheme to be introduced for overseas visitors – currently in consultation
  • Tightening union legislation, implementing Minimum Service Levels for transport services and forcing unions to put pay offers to a vote by their members.

As he left the dispatch box the Chancellor concluded, “Our entire focus is on making Britain more globally competitive… We promised to prioritise growth. We promised a new approach for a new era. We promised to release the enormous potential of this country. Our Growth Plan has delivered all those promises and more. And I commend it to the House.”

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 taxation and HMRC rules 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.

All details are correct at the time of writing (23 September 2022)

Contact us to talk about how this announcement affects your investments

 

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