Category: news
Investment market update: November 2022
Globally, inflation and recession risks continued to affect markets in November.
Head of the International Monetary Fund (IMF) Kristalina Georgieva suggested that inflation could be nearing its peak.
However, the Organisation for Economic Cooperation and Development (OECD) urged central banks around the world to keep raising interest rates to tackle moderate levels of inflation. So, while some of the pressure may be starting to ease, households and businesses are likely to still face challenges in 2023.
Remember, while markets may experience volatility, you should focus on your long-term goals. While it is impossible to guarantee returns, markets have historically recovered from downturns.
UK
Official statistics show that the UK economy contracted by 0.2% in the third quarter of 2022. This means the economy is on the brink of recession. Inflation also increased to another 40-year high in the 12 months to October to 11.1%.
Against this backdrop, new prime minister Rishi Sunak and chancellor Jeremy Hunt delivered the autumn statement.
In sharp contrast to the mini-Budget delivered just a few months ago under the leadership of Liz Truss, the autumn statement increased taxes. Key changes were made to the Capital Gains Tax annual exempt amount, Dividend Allowance, and the threshold for paying additional-rate Income Tax.
Hunt also confirmed that the State Pension triple lock would be maintained. This will give pensioners a record rise in income as the State Pension will increase by 10.1% in April 2023.
In response to high inflation, the Bank of England (BoE) increased its base interest rate again. The rate is now 3% and the highest it’s been since the financial crisis. The central bank also warned that the UK could face a prolonged recession.
The economic and political turmoil meant that Britain lost its title as Europe’s largest equity market to France.
The Standard & Poor (S&P) Global Purchasing Managers Index (PMI) for the UK manufacturing sector fell to 46.2 in October. A reading below 50 suggests the sector is contracting and it’s the lowest reading since May 2020 when the pandemic affected operations. The war in Ukraine, weaker demand from China, and ongoing challenges related to Brexit were linked to the downturn.
People reigning in their spending are affecting the retail sector. Data from the Office for National Statistics (ONS) suggests that retail sales are still below their pre-pandemic levels.
Several high street brands, including Joules and Made, have fallen into administration due to the challenging circumstances.
The economic uncertainty is affecting households too.
The UK jobless rate increased to 3.6%, according to the ONS, which also found that wages are lagging behind inflation.
A report from think tank the Resolution Foundation found that two decades of wage stagnation is costing the average British worker £15,000 a year. The report suggests that wages will not return to the level before the 2008 financial crisis in real terms until 2027.
Budgets are being stretched by household essentials. A report from Kantar Worldpanel found that grocery inflation hit 14.7%. This means that the average grocery bill has increased by £682 in a year.
With inflation in mind, it’s not surprising that a GfK report found that British consumer confidence is at a record low.
Consumer confidence is also affecting the housing market, with many people reluctant to move or increase the amount of debt they have as interest rates rise.
Figures from Nationwide show that house prices fell by 0.9% month-on-month in October. Many experts are predicting that house prices will fall in 2023. Savills predicts a fall of 10%.
In turn, this is affecting UK builders, as new orders fell for the first time since May 2020, when the first Covid-19 lockdown was in force.
Europe
The situation in Europe is similar to the UK, with recession risk and high inflation affecting business confidence.
According to Eurostat, inflation across the eurozone hit 10.6% in the 12 months to October. The energy crisis is the biggest factor pushing up the rate of inflation as prices were 41.5% higher than they were a year ago. There’s also significant variance between the countries that are part of the eurozone. France had the lowest rate of inflation at 7.1%, compared to 22.5% in Estonia.
Unsurprisingly, concerns are having a knock-on effect on businesses. The S&P Global PMI for manufacturing in the eurozone fell to a 29-month low of 46.4. The reading shows the sector is contracting, which could indicate the region is in recession.
As Europe’s largest economy, Germany is often used as an indicator of the region. German factory orders fell 4% month-on-month, partly driven by a fall in foreign orders.
This has affected business sentiment. A survey conducted by the Association of German Chambers of Commerce and Industry found that 82% of businesses see the price of energy and raw materials as a business risk. This is the highest since records began in 1985.
US
Official statistics suggest that inflation in the US is stabilising. In the 12 months to October 2022, it was 7.7% after a slight dip when compared to the previous month.
Figures from the Bureau for Labor Statistics also indicate that businesses are feeling optimistic. Despite economists expecting a drop in the number of job openings, there was an increase of more than 400,000 in September. The findings suggest that businesses are continuing to invest and feel confident enough to expand their workforce.
Revenue updates from some American companies also paint a positive picture.
Pharmaceutical firm Pfizer raised its 2022 earnings guidance and Covid-19 vaccine sale forecast. It now expects earnings per share to be between $6.40 and $6.50 (£6.20 to £6.30), compared to its previous forecast of $6.30 to $6.45 (£6.11 to £6.25).
US company Uber also saw its shares rise after it beat revenue forecasts. Year-on-year, revenue increased by 72% to $8.3 billion (£8.05 billion) after lockdowns were lifted.
On the flip side, Mark Zuckerberg, owner of Meta (formerly Facebook), admitted he had got it wrong and that things were worse than he had expected. The company is set to cut 11,000 jobs, the equivalent of 13% of its workforce.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Experts forecast a recession in 2023. Here’s why and what it means for your investments
Experts are predicting that the UK will face a recession in 2023. While it can be tempting to react to this news by changing your investment strategy, sticking to your long-term plan makes sense for most investors. Read on to find out why.
Several factors are contributing to economic uncertainty, including high inflation and concerns about energy supply. The long-term effects of the Covid-19 pandemic and the ongoing war in Ukraine are two of the reasons for these challenges.
In its November report, the Bank of England said the economic outlook was “very challenging”. It expects the economy to be in “recession for a prolonged period”, adding that inflation was forecast to remain high until mid-2023 when it is expected to fall sharply.
Other predictions also paint a gloomy picture of the UK economy.
According to the EY ITEM Club, the economy will contract by around 0.2% each quarter from the final quarter of 2022 until the second quarter of 2023. Overall, it expects the economy to contract by 0.3% in 2023. This compares to a previous forecast that indicated the economy would grow by 1%.
The organisation noted this is shallow when compared to previous recessions thanks, in part, to the government’s intervention on energy bills.
Hywel Ball, EY UK chair, added: “There are very significant risks to the forecast, with the potential for further surprises or global instability creating additional drags on growth. Businesses will need to think very carefully about their resilience and plan for different scenarios, while also being mindful of the support they provide to their customers and employees.”
Similarly, Goldman Sachs has downgraded its growth forecast for the UK, according to a Guardian report. The investment bank now expects the UK economy to shrink by 1% in 2023.
A recession could lead to market volatility, but history indicates it recovers in the long term
While these predictions can be alarming to an investor, remember, that markets have recovered from previous downturns.
Economic uncertainty can lead to businesses and households tightening their belts, which has a knock-on effect on business profitability and markets. While it’s impossible to predict the markets, history shows us that they have recovered from recessions in the past.
Take the 2008 financial crisis. In the UK, the recession that followed lasted for five consecutive quarters. During this time, the markets fell, but they went on to recover and grow. Investors that panicked and sold amid the downturn would have turned paper losses into real losses and missed out when markets began to rise.
Over the next year, your investment portfolio may experience volatility or a fall in value. While all investments carry some risk, looking at how markets have responded to similar events over the long term in the past can give you confidence.
If you’re tempted to make changes to your investments, here are five things you should do.
1. Focus on your long-term goals
As highlighted above, investment markets have historically delivered returns over the long term. Rather than responding to short-term economic challenges, focus on why you’re investing.
2. Don’t make knee-jerk decisions
It can be easy to make knee-jerk decisions, especially during investment volatility. But the decisions you make can have a long-lasting effect, so it’s important that they are measured. Taking some time to weigh up the pros and cons can highlight where you could be making a mistake by reacting to short-term volatility.
3. Review investments alongside your financial plan
Don’t think of your investments in isolation, they should play a role in your overall financial plan. So, if you’re tempted to make changes, review your options in the context of your wider finances and goals.
4. Consider your risk profile before you make changes
Before you make any investment decisions, you need to consider how they could change your risk profile. Choosing risk-appropriate investments is important. Taking too little risk could mean you don’t reach your goals, while taking too much could mean you’re exposed to more volatility.
5. Speak to us
If you have any questions about the current economic situation or would like to discuss your investment plan, speak to one of our team. We’ll help you understand the effect on your lifestyle and your goals. Whether you want reassurance that your plans are still on track or you’re considering making changes to your investments, we’re here to help.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Life insurance vs family income benefit: Which one is right for your family?
Creating financial security for your family if the worst should happen can be difficult to contemplate. However, it’s something that can ensure the people most important to you are taken care of.
If you’ve yet to take out financial protection that would give your loved ones financial security if you passed away, there are two main options to consider: life insurance and family income benefit.
Both options can be valuable and whether they’re right for your family will depend on your circumstances.
Life insurance would pay out a lump sum
Assuming you keep up the premiums, life insurance will pay out a lump sum if you pass away during the term.
The money paid out is tax-free and can be used however your family wishes. The level of cover chosen is often linked to significant financial commitments, such as your mortgage. However, your family could also use the money to support day-to-day living costs.
It’s important to calculate the level of cover that would provide your family with financial security and understand how losing your income could affect outgoings.
Life insurance can provide your loved ones with security so they can grieve without having to worry about how they’re going to meet bills or other expenses. It can also help maintain their lifestyle, such as paying the school fees of your children.
Family income benefit would pay out a regular income
If you passed away during the term and had paid the premiums, family income benefit would provide your loved ones with a regular income until the end of the policy term.
You may choose to link the cover to milestones, for example, ensuring that family income benefit would continue to provide an income until all your children reached adulthood.
You should consider what expenses your income is used for when calculating the level of cover that’s right for your family. As well as the outgoings you already pay, would they change if you passed away? For example, would your family’s childcare costs rise?
As family income benefit provides a regular income, it can make it easier for the surviving partner to manage their budget. However, it may not provide as much flexibility as life insurance.
Should you have both life insurance and family income benefit?
Depending on your circumstances, it may make sense to take out both life insurance and family income benefit.
Your family could use the money paid out from a life insurance policy to pay one-off costs, such as a mortgage. The regular income provided through family income benefit could then be used to cover day-to-day costs. It can help your loved ones balance large and small expenses they may be responsible for.
Financial planning can help you choose the right financial protection for your family
Understanding which type of financial protection is right for you, and what cover your family needs can be difficult. We’re here to help you understand the options and “what if?” scenarios you may be worried about to create a plan that suits you.
If providing your loved ones with a way to pay off the mortgage is a priority, for instance, you may want to consider life insurance where the cover reduces over time. This would reflect your regular mortgage repayments and mean premiums may be lower.
As well as helping you understand what type and level of cover is right for your family, financial planning can be invaluable if the worst happens.
It could help your partner understand how to use the pay out from life insurance to create long-term financial security. Receiving a lump sum can be useful, but it can also be overwhelming. Working with a professional to understand the different options could help them balance short- and long-term goals.
It can also provide financial peace of mind and mean they’re able to focus on grieving, or supporting children.
Working together with a financial planner can help you and your family have confidence that you’re financially prepared for the future.
When creating a financial plan, there may be other steps you can take to build long-term security too, from adding more to your pension to building an education fund for your children.
Contact us to talk about financial protection
If you have questions about financial protection and other steps you can take to create long-term financial security, even when the unexpected happens, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
4 vital things you should discuss when naming a Lasting Power of Attorney
A Lasting Power of Attorney (LPA) gives someone you trust the ability to make decisions on your behalf if you cannot.
This can ensure there’s someone taking care of your affairs and advocating on your behalf if you’re ill or lose mental capacity. Naming an LPA is an important step, and it’s one you should discuss with the prospective person first.
In simple terms, an LPA is a document that gives someone the power to make decisions around health or money on your behalf.
In many cases, an LPA is used when someone loses mental capacity, but it can also be useful in other situations and may be temporary. For example, if you’re receiving treatment in a hospital, you may want someone to manage your bills so you can focus on your recovery.
Without an LPA, it can be difficult, costly, and time-consuming for loved ones to gain the power to make decisions for you. They would need to apply to the Court of Protection, which would appoint a deputy to make decisions. The deputy appointed may not be the person you’d choose, so naming an LPA now can help ensure your wishes are carried out.
Even if you’re married or in a civil partnership, you should consider an LPA – your partner does not have an automatic right to manage your affairs.
Choosing your Lasting Power of Attorney
Anyone over the age of 18 can be named an LPA, but you should think carefully about who you choose.
The right person should be someone you trust. You should also consider their age and health. For instance, while your partner may be your first choice, they may have their own health issues to manage.
As well as someone you know, you may also choose a professional LPA, such as a solicitor.
You can choose more than one person to act on your behalf. You can decide if they can make decisions independently or must make them together. Having more than one LPA can be useful, but you should consider whether they may disagree on what to do.
Whoever you choose as your LPA, having an honest conversation is important. It can help ensure you’re both on the same page and mean you feel more confident that they’d make the right decisions if they need to.
Here are four topics you should cover.
1. The responsibilities of an LPA
Becoming an LPA is a big responsibility. If you plan to name a loved one as an LPA, it’s important they understand what is involved and they’re comfortable with the role.
2. Your preferences for health and care
There are two types of LPA. When naming someone to make health and welfare decisions on your behalf, they will have the power to choose things like whether you move into a care home and the medical treatment you receive.
It can be difficult to think about needing care or serious treatment, but it’s important to discuss these issues. It can help ensure that your loved one makes decisions that are in line with your wishes. So, covering key issues like the type of care you’d prefer and life-sustaining treatment is important.
3. How you’d like them to manage your finances
The second type of LPA covers property and finances. Your LPA may collect your pension, pay bills, and manage your bank accounts and investments on your behalf. They may also make decisions like selling your home or giving gifts to your family.
If you have a financial and estate plan in place, sharing the details with your LPA can be useful. Again, it can help them understand your preferences and act according to your wishes.
4. Set out specific instructions
An LPA must act in your best interests, but if you have specific instructions you want your LPA to follow, be clear about what they are.
You may, for instance, specify that you’d like them to consult your financial planner before they make any investments above a certain amount.
As well as a conversation, you can use your LPA document to provide extra instructions or record your preferences.
How to name a Lasting Power of Attorney
If you’re ready to name an LPA, you can fill in or print the necessary forms from the government’s website: gov.uk/power-of-attorney
The forms will need to be witnessed and signed by a “certificate provider”, who is there to ensure you’re acting of your own free will.
You can choose to fill in the forms yourself or seek legal advice, which could help you avoid mistakes.
You must register your LPA with the Office of Public Guardian for it to be valid. Registering each LPA will cost £82 unless you are eligible for an exemption or a remission.
If you’d like to discuss naming an LPA, including how we could work with someone you trust, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.