Before the Chancellor stood up on 15 March to deliver his budget speech, we were all aware of the impact of rising inflation on the cost of living so many were looking to see what the Chancellor would do to help with this. In the few days prior to the budget there were many comments that perhaps the pension Lifetime Allowance limit may be raised from £1.073 million to £1.8 million. However, the changes with regard to pensions were far more than expected, there were few changes with regard to tax and trusts as these were introduced in the Autumn 2022 budget and some action with regard to provision of child care and energy costs.

Income Tax thresholds

The Autumn 2022 budget introduced the freezing of the personal allowance and higher rate tax thresholds at £12,570 and £50,270 until 5 April 2028 with the 45% additional rate applying on income above £125,140. This budget made no changes to these thresholds, so with inflation at its highest rate for many years, as income rises to compensate for this more taxpayers will become higher rate and additional rate tax payers, so for many their tax payments will increase in the 2023/24 tax year.

Tax on dividend income and Capital Gains tax

The reductions in the dividend nil rate band and the reduction in Capital Gains allowed before tax is levied introduced last autumn also remain.

Corporation Tax

Again, there are no amendments to the announcements in previous budgets. As a result, with effect from 1 April 2023 Corporation Tax will increase to 25% on profits over £250,000.  For small businesses with profits of £50,000 or less the 19% rate will remain.

Inheritance Tax

This budget made no changes to Inheritance Tax so the threshold is to remain at current levels until April 2028.  The nil rate band will remain at £325,000 with the residential nil rate band remaining at £175,000. The nil rate band has remained the same since the 2009/10 tax year so has reduced significantly in real terms.  This was once deemed as a tax that only applied to the wealthy, but more and more people are being drawn into the IHT net.

Pensions

From a financial planning perspective, the big story of the budget is all the pension changes.

Lifetime Allowance

The rumoured increase in Lifetime Allowance (LTA) to £1.8 million proved to be wrong, as the Chancellor removed the limit completely. Technically the actual removal of Lifetime Allowance will not be until the 2024/25 tax year. For 2023/24 the requirement to calculate the percentage of LTA when benefits are taken will remain, but any benefit withdrawals in excess of LTA will not attract a charge. In effect the LTA tax rate is reduced to 0%. This is because it will take some time to unravel all the existing legislation which refers to Lifetime Allowance.

Those who had ceased contributions due to funds close to or above LTA, or who were concerned that investment return would lead to funds exceeding LTA, may now consider making further contributions and have the full benefit of good investment return without a tax penalty.

HMRC have indicated that anyone with a tax-free cash amount included as part of an existing protection should be able to retain this if it is higher than 25% of the current LTA. For everyone else the maximum tax-free cash will be 25% of the current LTA so £268,275. Similarly, anyone with scheme specific tax-free cash protection, in excess of 25% of their fund value, should hopefully retain this protection. However, the exact mechanisms relating to this protection have not yet been announced.

Annual Allowance

The Annual Allowance is the maximum amount of contribution that you can receive tax relief on in any given tax year. With effect from the 2023/24 tax year this is to rise to £60,000 from £40,000. The ability to use carry forward so that relief not used in the previous 3 tax years can be utilised will continue.

This will enable increased pension funding which may be particularly useful for those who will be paying additional tax rate for the first time with the reduction in threshold from £150,000 to £125,140.

Money Purchase Annual Allowance

If you have already started to draw benefits under the flexi-access drawdown rules you may make additional pension contributions, but only receive tax relief up to the Money Purchase Annual Allowance (MPAA). The Chancellor has increased the MPAA from £4,000 to £10,000 from the 2023/2024 tax year. The aim of this is to encourage people to return to the workplace and be able to benefit from the workplace pension arrangement.

Tapered Annual Allowance

These rules were brought in to restrict the level of contributions for anyone defined as a high earner. The minimum allowance will increase in line with the increase in the MPAA to £10,000. The threshold income is to remain at £200,000 but the adjusted income will rise to £260,000 to reflect the increase in Annual Allowance, with these changes applying from 6 April 2023. As now, £1 of allowance is lost for every £2 of adjusted income in excess of £260,000. As a result of these changes the minimum allowance will be reached once adjusted income reaches £360,000. At the moment the minimum allowance of £4,000 is reached when adjusted income reaches £312,000. After these changes, with adjusted income of £312,000 you would have an Annual Allowance of £34,000, which is a significant increase. There is a sliding scale of reductions to the Annual Allowance, depending on where the high earners level of ‘adjusted’ and ‘threshold’ income is between £260,000 and £360,000. The revised minimum allowance is £10,000 and this would be applicable where the adjusted income is £360,000 or more.

State Pension

No change has been made with regard to the triple lock so State Pension will continue to increase by the higher of inflation measured by CPI, average increase in wages or 2.5%. Currently there are also no changes to the already in place provisions for increasing State Pension age which is now 66 for men and women born between 6 October 1954 and 5 April 1960 and then for those born later gradually increasing to age 67 by 2028 and 68 by 2046.

Overall with all the pension changes and the freezing of allowances, many will need to review their retirement planning to take advantage of the tax reliefs available in respect of pension funding.

It should be noted that none of the budget changes are law until the Finance Act receives Royal Assent, which is generally around the third week of July. For anyone currently holding one of the Lifetime Allowance protections, particularly where the protection provides tax-free cash in excess of 25% of the current LTA (i.e. £268,275), you should discuss matters with your usual Hanover consultant before making any additional contributions. It may be best to wait for the detail of all of these changes to be confirmed in the Finance Act, just to ensure you do not lose a valuable protection if the Government perform a U-turn on these proposals.

A key aim of the above changes is to encourage people to keep working or if already early retired return to the workplace. In particular the aim is to encourage senior doctors and medical staff to stay working as with the generous terms of the NHS scheme many have found that they face tax charges if they continue working and have decided to retire as a result.

With the rising cost of living, the main issue for many will be the increase in tax payments as a result of the freezing of the thresholds. There were a number of other measures introduced in the budget that are aimed to help people return to work and to help with the cost of living.

Energy Costs

The energy price guarantee is to remain at the current level of £2,500 until 30 June saving a typical household around £160.

Child care Support

Another measure aimed to encourage people back into the workplace is the introduction of improved childcare support.  Free childcare is being expanded to cover all children under 5 years old but this will not be achieved until September 2025. The changes will not start until April 2024 when parents of two year olds will get 15 hours of free care and then children from 9 months getting 15 hours free childcare from September 2024 and finally 30 hours of free care for all under fives from September 2025.

The big issue with this is for many it is too little to late and in addition there needs to be significant investment in the child care sector to create all the places that will be required to achieve this. There are some proposals to support the development of additional care resources but little detail as to how this will be achieved currently.

Mental Health Support

The Government is to provide £400m as a support package to improve mental health and musculoskeletal (MSK) resources for workers. Digital resources such as apps to help in the management of mental health and MSK conditions will be made readily available. It is intended that a new programme to be called Work Well will be piloted to improve the integration of employment and health support for those with health conditions, with the aim of supporting individuals into employment and to remain in work.

Investment Zones

There will be 12 new investment zones in the West and East Midlands, Greater Manchester, the North East, West and South Yorkshire and Liverpool and one also in each of Scotland Wales and Northern Ireland as part of the levelling up initiative.

Annual Investment allowance

This allowance for small businesses is being increased to £1m, allowing 90% of businesses to deduct the full value of their investment from each years taxable profit.

Tax avoidance crackdown

There is to be a consultation on a new criminal offence for promoters of tax avoidance schemes and the doubling of the maximum sentences for tax fraud.

It is now anticipated that the UK will avoid a technical recession although it is still expected that the size of the UK economy will fall by 0.2% in 2023. The forecast for the following years has been cut to 1.3% for 2024, 2.5% for 2025 and 2.1% in 2026. In addition, it is now anticipated that inflation will fall to 2.9% by the end of 2023. However, it is clear that life will remain tough for many.

With all the changes for those who do have funds available to save, then a review of current planning should be undertaken to consider the implications of all these changes and see if amendments should be made.

Happy New Year and I hope that you all managed to have a relaxing festive period. As always seems to be the case, it feels like a lifetime ago now! For this review, we will have a quick look back at December, as well as giving a brief overview of how the year panned out for the major investment indices.

As we reported in last month’s review, the Bank of England (BoE) raised the base rate to 3.5%, a 50 basis points increase. This was the ninth consecutive increase for the key base rate here in the UK. Interestingly, the monetary committee were not all in agreement, with one official calling for a 75-basis increase and two others voting for no change. There was a slight decrease in the inflationary figures in November. The annualised rate of consumer price inflation fell to 10.7% from 11.1% in October. A small comfort, but prices have still risen at the most rapid rate for over 40 years.

During December, both the FTSE 100 Index and FTSE 250 Index fell by 1.6%. However, when you look at 2022 as whole, there was a marked difference in their performance. The FTSE 100 Index saw a very small increase of 0.9%, whereas the FTSE 250 Index declined by 19.7%. In large part, this is because the FTSE 250 Index is far more aligned with our domestic economy, where the FTSE 100 Index is more international. During 2022, the pound weakened against the US dollar, finishing at US$1.21 from US$1.35. Of course, during the year the pound was far lower, and has recovered somewhat.

Despite the UK economy growing by 0.5% in October, overall, in quarter 3 The Office for National Statistics advised that GDP fell 0.3% compared to quarter two. This was slightly worse than the expectation of a 0.2% contraction.

Over in the US

The Federal Reserve (Fed) increased their key interest rate by 50 basis points, meaning this was the seventh rise in 2022. However, this did show a slight loosening in their monetary tightening as the previous four rises had been at 75 basis points. The inflationary pressures in the US seem to show signs that the peak has been reached, as November saw their year-on-year rate fall to 7.1% from 7.7% in October. During December the Dow Jones Industrial Average Index dropped by 4.2% and by 8.8% over the course of the year. The S&P 500 Index fell by 19.4% over 2022, which was its worst year since 2008.

In Europe

Continuing the trend of increasing interest rates, the European Central Bank (ECB) raised its rates by 50 basis points to 2%. It is now expected for the ECB’s inflation rate to stay above its target of 2% until 2025. The President of the ECB advised “We’re not slowing down. We’re in for the long game”. The German’s Dax Index fell by 3.3% in December and by 12.3% in 2022.

In Japan

The Bank of Japan (BoJ) surprised markets by announcing that it would relax the cap it imposes on long-term yields from ±0.25% to ±0.50%. This saw a selloff in the Japanese bond markets. However, the BoJ remains largely on its own over monetary policy, as once again it didn’t raise interest rates, in direct contrast to the other central banks in the developed markets. The Nikkei 225 Index fell by 6.7% during December and by 9.4% during the year.

I am hopeful, that despite the falls in the markets in December, we are starting to see a more positive outlook. It does appear that the global inflationary issues are abating but are of course still extremely high. With this, it may well be that the rapid rises in interest rates could be nearing an end, as was seen with the Fed’s last rise. There is a long way to go and I am sure that there will still be some news that could have a downward effect on the markets during this year. But let’s hope that 2023 sees some growth on the portfolios and sees the long-term outlook of the investments start to pay dividends.

As ever, if you have any concerns regarding your investments, please do not hesitate to contact us by calling +44 (0) 29 2067 5204/ +44 (0) 7917 390 344 or emailing richard.brazier@hanoverfm.co.uk and we will be happy to talk to you.

As we approach the festive season, are we starting to see some positive news on the economic front? November saw global equities generally build on the positive returns seen in November. This meant, for the first time since last summer, equities saw consecutive months of gains. A lot of this positivity is on the hope that the pace of economic tightening is set to slow from central banks.

During November, the US Federal Reserve (Fed) raised their rates by a further 75 basis points to a range of 3.75% to 4%, which was the sixth consecutive increase. This is the highest level since January 2008. However, later in the month the Fed Chair, Jay Powell, indicated that the next rise would be 50 basis points. This was positively received by global equities markets. The Dow Jones Industrial Average Index saw a 5.7% increase during November.

There are some tentative indications that inflationary pressures are showing signs of peaking. The latest data in the US showed that inflation in October slowed to 7.7%, less than the anticipated 8%, representing the lowest level since January. In Europe, the rate of inflation in the eurozone saw its first fall since July 2021, easing from 10.6% in October to 10%. However, here in the UK, the annualised rate of inflation rose from 10.1% in September to 11.1% in October.

The Bank of England (BoE) raised interest rates by 0.75% to 3% in November, which was the most significant single hike since 1989.  The UK does, however, appear to be economically steadier following the volatility caused by the previous Prime Minister and Chancellor. In November, the Chancellor, Jeremy Hunt, announced £30 billion in spending cuts and £25 billion in tax rises during his autumn statement. The BoE has indicated that further rate rises will follow, but it is expected these won’t be as severe as was predicted a couple of months ago.  Indeed on 15 December, the BoE raised interest rates again to 3.5%.

It is very probable that the UK is already in a recession. The UK economy contracted by 0.2% in the third quarter, which followed a 0.2% increase in the second quarter. It is believed that this recession could last until the middle of 2024. During November, the FTSE 100 Index rose by 6.7%, whilst the FTSE 250 Index climbed by 7.1%.

The German economy is also expected to fall into a recession, with a predicted contraction of 0.3% in 2023, according to the Organisation for Economic Co-Operation & Development (OECD). Despite this prediction, the German Dax Index rose by 8.6% by the end of November.

One of the big talking points of the last month was China’s continued controversial zero Covid policy, which saw protests in many of their cities. This had a negative effect on investment sentiment both towards their economy and the wider global prospects. In Japan, their economy has seen a contraction of 1.2% year on year in the third quarter. Much like many global economies the rising prices have seen consumer spending curbed. In November, the Nikkei 225 Index increased by 1.4%.

It just remains for me to wish you all a very Merry Christmas and a Happy New Year. As ever, if you ever need to speak to us, please do not hesitate to contact us. We look forward to working with you in 2023.

The one thing we all knew before the Chancellor stood up to deliver the autumn budget on Thursday 17 November was that it would be painful – the unknown was precisely how painful.

Pensions

Before the budget statement there was lots of speculation that the life time allowance would remain fixed for longer, annual allowance may be reduced, ability to claim higher rate tax relief would be removed and the ability to take a lump sum tax free would be removed. However, Pension arrangements emerged from the budget with no changes.

As a result of other modifications, particularly those in respect of the income tax thresholds, now may be a good time to review levels of pension contributions.

Income Tax thresholds

The personal allowance and higher rate tax thresholds are now to be frozen at £12,570 and £50,270 until 5 April 2028.  The 45% Additional Rate currently applies on income above £150,000, but from 6 April 2023 that will be reduced to £125,140. With inflation at its highest rate for many years, if income rises to compensate for inflation more taxpayers will become higher rate and additional rate tax payers.

The removal of the personal allowance on a £1 for every £2 basis on income over £100,000 remains, so this essentially means that the UK tax system will start at 20% then 40%, then 60% and then 45% with the bands as follows:

For those earning over £100,000, the payment of additional pension contributions so long as the amount stays within the £40,000 annual allowance is worthy of serious consideration to reduce tax bills.

Current Scottish Tax Rates for tax year 2022/23

It is not yet known whether the Scottish Government will follow the action in the recent Autumn Budget and start the highest rate of tax at an income of £125,141.

Tax on dividend income

The current dividend nil rate band of £2,000 is to be reduced to £1,000 in April 2023 and then further to £500 in April 2024.   

The dividend tax increase of 1.25% that applies for tax year 2022/23 will be maintained for tax year 2023/24 so that for basic rate payers dividend tax will be 8.75%, for higher rate tax payers, 33.75% and for additional rate tax payers 39.35%.   

This will impact company shareholders who take part of their income in the form of dividends but also a number of investors who hold equity OEIC funds directly. It should be remembered that even if income is reinvested and not distributed it remains income for tax purposes so a review of these investments may be appropriate.

National Insurance contributions

The removal of the additional 1.25% National Insurance contributions that was originally introduced for the current tax year is to remain, so from 6 November 2022 NI rates revert to the 2021/22 levels. 

There will be some changes to the various thresholds with several being aligned with the Personal Allowance of £12,570 with effect from 6 April 2023.

Although this will mean slightly lower National Insurance contributions, consideration of making pension contributions by salary sacrifice will continue to make sense from a “tax “ perspective.

Capital Gains Tax

Currently it is possible to have a capital gain of £12,300 in the tax year without incurring a tax liability. This will reduce to £6,000 from April 2023 and then again to £3,000 from April 2024.

This is likely to impact anyone invested in OEICs, shares or property. It is quite common for investment portfolios to be rebalanced periodically and this will become harder without incurring a tax liability. If, however, investments are held in a single company multi asset fund then this is not an issue as these funds are rebalanced by the investment manager and not the individual investor.

Inheritance Tax

The inheritance tax thresholds are now going to remain at current levels until April 2028. The nil rate band will remain at £325,000 with the residential nil rate band remaining at £175,000. The nil rate band had therefore remained the same since the 2009/10 tax year so has reduced significantly in real terms. This was once deemed as a tax that only applied to the wealthy, but more and more people are being drawn into the IHT net.

This means that more than ever, anyone with assets around this level should seek assistance from a financial planner to explore the various ways that the impact of IHT can be reduced, whether this be through consideration of investing in certain assets or gifting assets down the generations.

Corporation Tax

The proposed changes in the September mini budget have been scrapped so we are back to the changes put forward in the Spring 2021 budget.  

Corporation Tax will remain at 19% for the financial years commencing 1 April 2021 and 1 April 2022, but from 1 April 2023 will increase to 25% on profits over £250,000. For small businesses with profits of £50,000 or less the 19% rate will remain.

As a result of these changes, some businesses may wish to see if they can accelerate income or gains so that they fall into company years before the changes take place. In addition, delaying tax allowable expenditure until the new regime kicks in may be an option.

When all of these changes are taken together it is certainly not a happy story. Individuals and businesses will need to consider their financial plans and take advice on the options that are available. Business owners may need to review their remuneration strategies. Pension contributions will be more valuable for many. Finally, businesses may wish to consider investing some of the accumulated profits as this may open up other tax saving strategies.

Robert Young BSc FIA

Director & Consulting Actuary November 2022
t:   +44 (0) 20 7518 0251
m: +44 (0)  7793 062 419
e:  R.Young@hanover-pensions.co.uk

September was another month of market volatility, which continued the downward trend that we have seen all this year.

The UK market

Several of the major central banks continued to raise their interest rates to counter the rising inflationary pressures. The Bank of England (BoE) delayed their announcement in September due to the Queen’s passing, but when they met, in a widely expected move, they increased the key interest rate from 1.75% to 2.25%. This is now the highest rate we have seen in the UK since 2008 and the BoE have confirmed that it would implement further increases in the coming months.

Inflation in the UK dropped slightly to 9.9% in August, but this was still the highest in the G7 countries. The BoE now predicts that inflation will rise to 11%, which is lower than their previous expectation of 13% following the Government’s Energy Price Guarantee.

As I mentioned in my last review, the mini-budget announced by the then Chancellor, Kwasi Kwarteng, was received badly by the international markets. This saw sterling fall to a 37-year low against the dollar, a sharp selloff of gilts and the FTSE 100 tumbling. During September the FTSE 100 was down by 5.4%, while the FTSE 250 fell by 9.9%. Since the start of the year, the FTSE 100 has dropped by 6.6% and the FTSE 250 by 26.9%.

It is now anticipated that the BoE will have to raise rates higher than previously expected. Although the BoE did not immediately raise rates after the mini budget, it indicated it “will not hesitate” to increase rates as and when is needed to bring inflation back to its 2% target. However, the BoE did take emergency action to support the gilts market, when it announced a £65bn bond-buying programme. The intention was to restore orderly market conditions, where there was concern about a material risk to UK financial stability.

Across the pond

The US Federal Reserve (Fed) raised its rates by a further 0.75% for the third time in a row, putting their rates in the range of 3% to 3.25%, which added pressure to US equities and bonds. During the month the Dow Jones Industrial Average Index was down by 8.8%.

Much like the UK, the Fed has confirmed its commitment to getting inflation under control. The Chairman of the Fed, Jay Powell, warned that interest rates would be maintained at a level to restrain economic growth ‘for some time’ and that this would hurt growth and employment levels. Data showed that in August US consumer inflation was 8.3%, which was down from 8.5% in July, but higher than the expected 8.1%.

European markets

Over in Europe, the European Central Bank (ECB) unanimously voted to raise interest rates from zero to 0.75%, its highest level since 2011. The Eurozone’s rate of inflation rose to 9.1% in August from 8.9% in July. They now expect to hit double figures when the September figures are released. The ECB have indicated there will be more increases to come, but there will probably be less than five. To date, the ECB has been lagging behind the major central banks in hiking their interest rates to combat rising inflation.

The ECB does not expect a recession in the Eurozone and raised its expectation of economic growth to 3.1% for this year, but did cut its expectations for next year to 0.9% and 2024 to 1.9%. These predictions contrasted with those of several think-tanks that warned the soaring energy prices would cause an economic decline in Germany in 2023. The ECB will begin negotiations in October to start reducing its EUR 5 trillion bond portfolio amassed over the last seven years on its balance sheet, which would likely increase borrowing costs, putting additional pressure on the budgets of southern European member countries. During September, the German Dax Index fell by 5.6%.

Japan

One central bank that has bucked the trend for increasing interest rates is the Bank of Japan (BoJ). Their continued loose monetary policy has resulted with the yen being undermined, especially with the stronger dollar. The BoJ was forced to intervene in markets for the first time since the late 1990s to shore up the yen after the Fed’s rate hike. Over September, the Nikkei 225 Index (a stock market index for the Tokyo Stock Exchange) fell by 7.7%.

You and your investments

The market reviews clearly illustrate that these are very challenging times to have monies invested, wherever in the world they may be. Sadly, there is very little positive news out there. We always advise that your investments can go down as well as up, but we appreciate that can be of little comfort with the current economic environment. As always, our advice in these times is not to panic. Although, when I look at my own investments, I appreciate this can be easier said than done.

In these uncertain times I try to remember that I am investing for the longer term and think about the bigger picture. With all the current market volatility, I know the best antidote to this is to spread the risk across a broadly diversified investment portfolio that I hope can reap rewards from multiple sources, with a long-term investment horizon. There is a lot of media attention on the current climate and these headlines can be very concerning. However, sometimes they aren’t necessarily relevant to your actual investment circumstances and I would suggest that it is best not to be led by the headlines alone.

By remembering that your investment is for the longer term, you may feel more able to wait for this economic storm to pass. However, always remember that we are here to provide reassurance where we can and any guidance that you may need. Please do reach out to us, should you have any questions at all on the current economic climate, or more specifically on your investment.

As ever, if you have any concerns regarding your investments, please do not hesitate to contact us by calling +44 (0) 29 2067 5204/ +44 (0) 7917 390 344 or emailing me at richard.brazier@hanoverfm.co.uk and we will be happy to talk to you.

Following the recent ‘mini budget’ from the new Chancellor, Kwasi Kwarteng, there has been significant disruption to the global markets which will inevitably have knock-on effects to your investments. In this month’s market update, I summarise the recent changes and how this may affect you. As always, please get in touch to discuss your investment portfolio any concerns or questions you may have.

The key findings from the Chancellor’s statement

In a nutshell, the Chancellor announced the following:

• Basic rate income tax to be reduced to 19% from April 2023
• 45% higher rate of income tax to be abolished
• Reverse the recent rise in National Insurance from 6^th November 2022
• Cancel the increase in Corporation Tax which was due to increase from 19% to 25% in April 2023
• No Stamp Duty on first £250,000 and none for first time buyers up to £425,000
• Freeze on energy bills
• Limits on bankers bonuses to be scrapped

The market response

The reaction in the markets to this statement was swift and negative. The pound fell to record lows against the dollar, and the global investment markets also reacted negatively. The Chancellor is convinced these measures are needed to stimulate growth in our economy, but this clearly was not the markets initial reaction. They looked more at the level of government borrowing that will be needed to fund these cuts.

What will happen next?

There is now intense pressure on the Bank of England to raise interest rates at a higher level than was expected, to prop up Sterling in the currency markets, as well as quell the inflationary pressures.

Both the Treasury and Bank of England released statements to try and reassure the markets. The Treasury advised that it would produce a plan that would show how the debt would be managed. In their statement, the Bank of England said they were "monitoring developments closely" and would make a decision on any action in November.

Interest rate rises

It is now expected that the Bank of England will raise interest rates at a sharper level than previously expected, which will in turn cause mortgage costs to dramatically increase. Previously, it was expected that interest rates would increase to 2.75% to 3% next year. Currently, this prediction has risen to just below 6%. Although by historical standards this rate isn’t that high, the impact this could have on UK households in today’s terms could be considerable.

It should be said that currently the dollar is strong against many of the global currencies at the moment, but there is no doubt that the Chancellor’s statement accelerated the weakness of Sterling. The pound has risen slightly from its lowest point, although I have a feeling this is based on how the markets think the Bank of England will have to react.

What this means for you and your finances  

Pensions

By cutting income tax, this will also see a reduction in the basic rate tax relief from 20% to 19% given on contributions. Currently, someone wishing to make a £100 gross contribution will actually pay £80 with the tax relief. This will increase to £81 with the cut in income tax.

Of course, the flip side of this, is for someone in receipt of a pension and paying basic rate tax on the income. With the cut in income tax, they will pay less in tax, which is certainly welcome news.

Savings

Savers benefit from a personal savings allowance (PSA). Currently, non-taxpayers and basic rate taxpayers’ allowance is £1,000, higher rate taxpayers see this allowance reduce to £500 and additional rate taxpayers have a zero allowance. So, additional rate taxpayers will now become higher rate taxpayers and will benefit from the £500 allowance.

The cut in basic rate tax could be beneficial to savers earning interest on savings over the PSA, which is outside a pension or ISA. This is because they will pay tax on the excess at their marginal rate and could now have a lower tax bill due to the reduction in basic rate.

As interest rates have been low for a considerable length of time, savers have largely benefited from the PSA. However, with rising interest rates, savers may need to consider whether this will push them over the PSA. The use of Cash ISA’s may be a useful investment vehicle to consider, if you feel your interest savings could be pushed above the PSA.

Property

The other significant tax cut that was announced was regarding stamp duty. The threshold was increased from £125,000 to £250,000, and first-time buyers saw their threshold raised to £425,000.

On the face of it this seems like good news for house buyers. However, my concern is that with the dramatic rise in mortgage rates and the cost of living, will these cuts benefit buyers in the long term.

It remains to be seen what impact the mini budget will have on the housing market. The sector has remained remarkably buoyant over the last few years, but this could be a tipping point, with rising mortgage costs and the ever-increasing cost of living.

From an investment perspective, I hope that over the coming days and weeks the markets settle down, from what has already been a volatile few months. The Bank of England have reiterated that their focus is to curb inflation and bring this back from the 40-year highs we are seeing currently. When the Treasury sets out in detail how the cuts will be funded, I hope that this will provide the reassurance the markets are wanting.

As ever, if you have any concerns regarding your investments, please do not hesitate to contact us by calling +44 (0) 29 2067 5204/ +44 (0) 7917 390 344  or emailing me at richard.brazier@hanoverfm.co.uk and we will be happy to talk to you.

The forecast in July was bright, as we enjoyed many days of warm weather. However, the economic forecast didn't seem so bright, with news of inflation and the cost of living crisis dominating the headlines.

Nevertheless, last month mostly saw a global rise in share prices. This would have been reflected in your portfolio values, which feels like the first bit of good news this year in terms of your investment.

UK

Here in the UK, inflation continued to be the main story, as higher prices for food and fuel saw the annual rate of consumer price inflation rise to 9.4% in June, from 9.1% in May. Andrew Bailey, the Governor of the Bank of England (BoE), once again stated his desire to curb inflationary pressures, stating “There are no ifs or buts in our commitment to the 2% inflation target. That’s our job, and that’s what we will do”.

The International Monetary Fund expects the UK to post the weakest growth amongst its G7 peers in 2023, as it cuts its forecast to 3.2% this year and 0.5% for 2023. During May, the UK economy grew by 0.5% after having seen a contraction in April. The FTSE 100 Index increased by 3.5% during July, whilst the FTSE 250 Index rose by 8%.

US

In the US, their economy contracted for the second quarter in a row, seeing a 0.9% fall to the end of June. However, the Federal Reserve (Fed) Chair Jerome Powell, was still playing down the prospect of the US economy falling into recession. He said, “I do not think the US is currently in a recession… there are just too many areas of the economy performing too well”. During the course of July, the Dow Jones Industrial Average Index saw a rise of 6.7%. 

Much like in the UK, the US is still dealing with inflationary pressures. During June the US consumer price inflation rose to 9.1% year on year. As was widely expected, the Fed raised their interest rates by 0.75 percentage points in July, taking their rates to a range of 2.25% to 2.5%. These rises always fuel concerns over the impact they could have on economic growth. The Fed are well aware of these concerns and Chair Powell looked to reassure investors when he said it would “likely become appropriate to slow the pace of increases” while they evaluate the impact these rises are having on inflation and growth.

Europe

In Europe, the European Central Bank (ECB) raised its interest rates for the first time in 11 years, seeing an increase of 50 basis points to zero. It is widely anticipated that further increases will happen and are likely to take place on a meeting-by-meeting basis. The President of the ECB, Christine Lagarde, cautioned “Economic activity is slowing… We expect inflation to remain undesirably high for some time”. Citing the impact of the war in Ukraine on energy supplies and food prices, the European Commission cut its growth forecast for the European Union to 1.4% in 2023. Finally, the German Dax Index saw an increase of 5.5% during July.

Elsewhere in the world

Following a theme with cut growth forecasts, the Bank of Japan advised they have downgraded their forecast for this year to 2.4% from 2.9%. They expect their economy to recover in the second half of the year, as the impact of Covid-19 and supply chain issues begin to ease. However, the Nikkei 225 Index rose by 5.3% in July.

As you can see, the major indices rose during July, which is good news for your investment portfolios. However, we can also see that we are a long way from the economic cloud being lifted. The markets are certainly hopeful that the policy tightening that has been seen by the central banks, will begin to have an impact on the inflationary pressures. 

As always, if you have any questions regarding your investment or the current economic climate, please do not hesitate to contact us.

June saw the investment markets take further hits, which was highlighted by the S&P 500 Index in the US, which posted its worst first six months of the year since 1970. As we have been advising for the last few months, these are certainly very challenging times for your investments.

Rising inflation, which has been on the ascendancy for two years now, and the impact it is having on economic growth are all contributing to the general malaise we are experiencing. Central banks are now having to walk a tightrope of increasing interest rates, to curb inflationary issues, whilst balancing this against tipping economies into a recession. Stagflation (high inflation and low economic growth) is becoming a real possibility for some countries.

The inflationary issues are proving to be toxic for the investment markets with almost all the sectors being extremely volatile, which includes equities, bonds, and currencies. Under normal market conditions, we would hope that fixed interest would provide the ‘safety net’ when equities are being sold off. However, in this rare period for the investment markets, they have correlated. In fact, in some markets such as the UK, they are performing worse.

Let’s look at some of the main economies around the world.

UK

Here in the UK, the Bank of England (BoE) raised based rates for the fifth consecutive increase since December 2021. The UK’s base rate was raised to 1.25% from 1.00%, which is now the highest level seen since 2009. During June, the FTSE 100 Index was down by 5.8%, and the FTSE 250 Index fell by 8.6%.

During May, the UK’s annualised rate of consumer price inflation rose to 9.1% from 9.0% in April. The expectation is now that inflation will rise above 11% in October, which will be exacerbated by more increases in energy costs. The BoE has advised that they would “act forcefully” in an attempt to control these inflationary pressures.

US

Over in the US, the Federal Reserve (Fed) increased its key interest by 75 basis points in June. This saw their rate increase to a range of 1.5% to 1.75%, which was the largest increase since 1994. It is widely expected that rates will continue to rise through 2022, with the potential for another one as soon as July. The Fed has already indicated that they expect, by the end of this year, for rates to have risen to 3.4%.

Of course, these rate hikes are being used to try to combat inflation, the same as in the UK, although as can be seen, they are taking much bigger steps. In May, the US saw the largest 12-month increase in consumer price inflation since December 1981, which accelerated to 8.6%. During June, the Dow Jones Industrial Average Index fell by 6.7%, and the S&P 500 Index fell by 8.4%.

Europe

The European Central Bank (ECB) has so far avoided raising its rates to combat the inflationary pressures being seen. However, this is about to change, as the ECB is set to increase their rates in July, which will be the first time in over 11 years. The ECB intends to increase by 25 basis points during the month, in a bid to tackle inflation. During May the eurozone’s rate of inflation increased to 8.1%, and like elsewhere in the world, this is expected to stay high for some time to come. The German Dax Index saw a drop of 11.2% over June.

Elsewhere in the world

However, not all countries are having to battle inflationary pressures. In Japan, their rate of consumer price inflation rose to 2.5% during May. This has meant that the Bank of Japan can remain committed to its programme of negative interest rates and bond purchases. The Nikkei 225 fell by 3.3% during June.

We understand that the current economic and market news is very disheartening. However, we remain convinced that by investing over the longer term, the news will get better, and you will see a turnaround in the values of your investment portfolios.

As always, if you would like to discuss any aspect of your financial planning, please do not hesitate to get in contact with us.

Enjoy your summer and let’s hope for some positive news in the markets in the second half of the year!

Richard BrazierDirector E RichardBrazier@hanoverfm.co.uk

Who should you contact for more information?

Director Richard Brazier

Financial Adviser Amanda Beacon

As we enter the June, it is fair to say that 2022 hasn’t been a good year so far for investors. The word 'unprecedented' was used a lot when the pandemic first took effect in the Spring of 2020 - and for good reason. We saw the investment markets drop at a rate we hadn’t witnessed before, but almost as quickly we saw them begin to recover.  

I had hoped that those times were behind us, but undoubtedly, we are once again seeing unprecedented markets, but for different reasons altogether. From the end of 2021 until now, there have many factors at play which have affected how your investments have performed; including concerns over the Omicron variant, rising energy prices, global inflationary pressures, Covid lockdowns in China, and of course, the war in Ukraine. Unfortunately, very few investment sectors have been in positive territory this year. 

UK

Here in the UK, energy costs are continuing to drive up inflation. In April, we saw inflation increase to a year-on-year figure of 9%, which was a significant jump from the already high 7% in March. This was mainly caused by the increase in the energy price cap which went up by 54%, meaning an average household will now be paying £1,971 per annum via direct debit. In a bid to help alleviate the impact of these higher bills, the Government introduced a package of measures worth £15 billion, which in part will be financed by a windfall tax on energy firms. 

US

The US is also dealing with similarly high inflationary pressures, although their rate of consumer price inflation fell slightly in April as petrol prices eased. The rate in April was 8.3% falling from 8.5% in March. Much like in the UK, these are decade-high rates, and in the US these rates have not been seen in 40 years. 

Highlighting how inflationary pressures are global, Europe’s rate of inflation rose sharply in May to an all-time high of 8.3%, as is the case here in the UK driven by the high energy prices. There are some countries in the Eurozone that are now seeing double-digit inflation, whereas in contrast, France has a relatively low rate of 5.8%. However, the European Central Bank (ECB) has indicated that they expect inflation to be on target in the Eurozone in the medium term. 

With inflation being so high, the central banks around the world have been announcing a series of increases in key interest rates. Here in the UK, the Bank of England (BoE) raised the base rate by 25 basis points to 1%; a level that was last seen in 2009. The US Federal Reserve (Fed) also raised its rate to a range between 0.75% and 1%, which was an increase of 50 basis points. Both the BoE and Fed are expected to continue monetary tightening measures through 2022. The fear for investment markets is how will the increase in rates affect the economic growth in the coming months. 

Elsewhere in the world

Europe is also expected to raise rates in 2022, India increased its key interest rate to 4.4% to curb inflationary pressures and Australia raised their rate to 0.35% which was its first increase in a decade. 

Looking at the global investment markets for May, the FTSE 100 was largely unchanged increasing by 0.8%, whilst the FTSE 250 fell by 1.4%. The Dow Jones Industrial Average Index in the US ended the month in basically the same position as at the start. In Germany, The Dax Index rose by 2.1% and the Nikkei Index in Japan saw a 1.6% increase. 

What does all this news mean for your investment portfolios?

Throughout 2022, rising inflation is proving a major issue for almost all the asset classes, whether it be equities, bonds or currencies. The hope last year was that the inflationary pressures were a temporary concern caused by Covid-19. It seems clear that these price spikes will last longer than was originally predicted. 

In general, the equity markets have struggled so far this year, where the prospect of higher interest rates has undoubtedly hit returns. The UK market has fared slightly better with its skew towards the energy and financial sectors. 

Normally, when the equity markets are in retreat, you would expect the fixed income sector to provide the cushion to some of these sell-offs. However, in this rare period of market stress, the asset classes have correlated. In other words, they are also facing negative returns, where the rising interest rates are having an impact. 

As always, we advise that your portfolios are long-term investments and, as seen historically, we believe the performance will gradually return. Indeed, many studies have shown that it is time out of the investment markets that most impacts overall long-term return. This is because many of the best-performing days immediately follow a market downturn. If you are concerned about the current investment conditions, please do not hesitate to contact us, and we will be happy to talk in more detail. 

Richard Brazier Director E RichardBrazier@hanoverfm.co.uk

Who should you contact for more information?

Director Richard Brazier

Financial Adviser Amanda Beacon

Senior Consultant Graham Smithson

These past few months have undoubtedly been volatile in the investment markets and, unfortunately, have been reflected in your investment portfolios. During April, we saw concerns continue over the war in Ukraine, nervousness over global inflationary pressures, and fears over the wider economic impact of Covid outbreaks in China. This all culminated in the International Monetary Fund (IMF) cutting its global growth forecasts to 3.6% this year from 4.4% and to 3.6% from 3.8% for 2023.

UK

In the UK, inflation continues, the FTSE 100 is doing better than a lot of other global markets, but other areas are still showing signs of struggle

Inflation shows no signs of slowing, fuelled by ever-increasing energy prices, which saw the energy price cap rise again in April. The Consumer Price Index rose to 7% in March, with expectations that 10% could be seen by the end of the year.

Not surprisingly, consumer confidence has deteriorated as the year has passed. To highlight this, The Office for National Statistics (ONS) reported that retail sales fell by 1.4% throughout March. Despite this, the FTSE 100 index rose by 0.4% during April and has increased by 2.2% since the start of the year. However, looking a bit deeper at the markets here in the UK, the FTSE 250 fell by 2.1% in April. Mid-caps have also fallen by 11.8% throughout 2022. This shows that the blue-chip index of the FTSE 100 has fared better than a lot of global markets, but underneath this, investment markets in the UK have struggled.

As mentioned, the IMF has cut its global growth forecasts, and this is reflected in its new forecasts for the UK. They have cut the expected growth here from 4.7% to 3.7% for this year and to 1.2% from 2.3% in 2023. The growth is being impacted by the waning of consumer spending, increasing interest rates and the impact of Brexit. The UK economy fell from 0.8% in January to just 0.1% in February.  

US

Over in the US, the annualised rate of consumer price inflation hit a high

The economy had been expanding as 2021 drew to close, however in the first quarter of 2022 this began to reverse with an annualised rated reduction of 1.4%. As we have seen here in the UK, inflationary pressures are very much at the forefront of the economic news. In March, the annualised rate of consumer price inflation hit a 40-year high.

Showing that increasing energy prices are a global issue, the US saw a 32% increase, whilst in Germany, their energy prices rose by 83.8% year on year. Digging deeper into the German figure shows that their natural gas prices rocketed by 144.8%. During April, the Dow Jones Industrial Average Index in the US fell by 4.9%, whilst the German’s Dax Index saw a drop of 2.2%.

China

Initial growth figures for China look good but not against target

China saw a new lockdown measure come into effect, with concerns over a new Covid outbreak. Initial figures for China's first quarter growth look very good, with a 4.8% year-on-year rise. However, this fell well below their own government target of 5.5%. Over the course of last month, the Shanghai Composite Index declined by 6.3%.

What this means for you and your investments

The current economic climate and the impact this is having on your portfolios will undoubtedly create unease. At Hanover, our investment philosophy is always for the long term, and we can assure you that there is no need to panic over short-term losses. This was demonstrated as recently as 2020 when the pandemic saw an unprecedented downturn in the markets. These reverses have since been regained over the last year or so and have not negatively impacted our client’s investments.

As always, please do not hesitate to contact us if you would like to talk about your investment(s).

Richard Brazier Director E RichardBrazier@hanoverfm.co.uk

Who should you contact for more information?

Director Richard Brazier

Financial Adviser Amanda Beacon

Senior Consultant Graham Smithson