WeeklyWatch – UK economy transcended its pre-pandemic level

19 January 2022

Stock Take

A common thread

The themes of inflation measures and economic output have dominated headlines over the past few months, and last week was no different, with global stock markets continuing to respond to data related to the economic recovery in the wake of the pandemic.

Notably, the question of how soon the Federal Reserve (the US central bank) is likely to shift its monetary policy this year continued to be a talking point. It was one of many central banks across the globe that boosted its various forms of support in 2020 to help markets recover from the jolt of the pandemic – and Fed officials are now indicating that they will taper their support in order to tackle the issue of rising inflation.

For example, on Tuesday, Jay Powell – Chairman of the Federal Reserve – spoke to a Senate committee regarding the future. His comments have been pored over for hints about the direction of US monetary policy, and last week’s remarks seemed to appease markets. One comment in particular about the bank acting to curb inflation provided reassurance, although it anticipates that inflation will peak mid-2022.

Data reveal

New data materialised last week on inflation, revealing that US consumer prices were up 7% in the month of December compared to December 2020.

US stocks had recorded their second weekly decline in a row by the close of the week, after the shares of large US banks fell after some lower-than-anticipated financial results from JP Morgan.

In spite of the uncertainty related to the Omicron variant, and rising inflation figures, global equity markets are nevertheless almost at their record highs. For instance, the FTSE All-World index remains close to its all-time high that it reached earlier this month.

Growth prospects

There was some positive news in the UK towards the end of the week. On Friday, the Office for National Statistics announced that the UK economy transcended its pre-COVID level in November for the first time since the pandemic broke out. This rise was, in part, attributed to a surge in early Christmas shopping.

Suren Thiru, Head of Economics at the British Chambers of Commerce, commented:

“Stronger growth in November is likely to be followed by a modest fall in output in December and January, as consumer caution to socialise and spend, and mounting staff absences sparked by Omicron and Plan B, limit activity.

“While the UK economy should rebound once Plan B measures are lifted, surging inflation and persistent supply chain disruption may mean that the UK’s economic growth prospects remain under pressure for much of 2022.”

For investors, the best way forward amid so much uncertainty about the rate of economic recovery, inflation and COVID-19 variants isn’t always clear-cut. However, taking a long-term approach to investment coupled with a diversified portfolio means you can at least be reassured that your investments aren’t dependent on any one outcome.

Wealth Check

The new year is as good a time as any to adopt some new habits that will have a veritable impact on your life. Financial goals are an ideal starting point – not least because they’re often attached to palpable positive outcomes.

Tony Clark, Senior Propositions Manager at St. James’s Place Wealth Management, says:

“Getting into good tax and financial habits will make your life so much easier. The key is to form new habits that make your good intentions stick, to the point that you don’t even know you’re doing them.”

Here are five simple but effective habits to get into before the end of the tax year:

1. Maximise your allowances

We all have allowances at our disposal that help our money go further. These may be ISAs, but there are also other options that fail to get a look in and are therefore left unused.

Clark says:

“Make sure you’re not missing out on the allowances that you can benefit from. Are you using what you’re entitled to, such as carry forward on your annual pensions allowances or gifting for Inheritance Tax?”

Find out what’s available and what you could benefit from – otherwise you risk missing out on a great money-saving opportunity.

2. Get organised

Take control of your money rather than letting it control you – downloading the HMRC app is a good starting point, says Clark:

“There’s loads of information on there that people might not be aware of, so it’s very useful. You can use it to keep track of your records, and stay on top of things such as your tax code, for example.”

3. Act now

The tax year ends on 5 April – and while that might seem some way off, there’s no point in creating stress by leaving everything until the last minute. By acting sooner rather than later, you can benefit from the additional time it can take providers to process transactions at tax-year end.

Regardless of whether you need to top up your ISA, make extra pension contributions or action other changes, it’s worth allocating some time well before April to avoid adding to your to-do list nearer the time.

4. Organise your paperwork

The number of those going self-employed surged during the pandemic, seeing more people in the self-assessment system. The 31 January deadline for online self-assessment returns can sometimes mean a scrambled search for the records and information you need to get your ducks in a row. By keeping your paperwork up to date, life will be much easier when self-assessment time comes around.

Clark says:

“It’s easy to miss the deadline and incur penalties that you might otherwise have avoided. If you’re self-employed, your personal finances will be inextricably linked to your business, so you’ve got more work to do. It’s especially important to be organised and get advice.”

5. Speak to a professional adviser

Probably the best habit to get into and the step that will drive other good financial habits is to speak to an adviser.

Clark concludes:

“A regular check-in with your adviser will give you the impetus and momentum to keep on top of everything. They will help you with gentle reminders and ask the questions you need to think about.”

Consistency is key when it comes to adopting good habits that will stick. This applies to financial and tax matters too, and once they’re firmly in your routine, they’ll set you up for life. There’s no time like the present!

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

The Last Word

“We can begin to see that the post-pandemic economy is likely to be different in some respects. The pursuit of our goals will need to take these differences into account. To that end, monetary policy must take a broad and forward-looking view, keeping pace with an ever-evolving economy.”

– Federal Reserve chair Jerome Powell tells the US Senate last week that the central bank will try to prevent inflation becoming entrenched.

The information contained is correct as at the date of the article.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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