WeeklyWatch – Spring Statement prompts market reaction

29 March 2022

Stock Take

Low expectations…

Chancellor Rishi Sunak’s Spring Statement and lack of any major ‘giveaway’ may well have disappointed some investors, in spite of rising inflation.

On Wednesday, the Office for National Statistics (ONS) announced that UK CPI inflation reached 6.2% in February – the highest in 30 years. Further price rises are anticipated over the coming months, as mounting energy prices and ongoing supply chain disruptions continue to sting.

…and inflation observations

The knock-on effect of the inflation data on UK markets was a mixed bag. The FTSE 250 – which is highly exposed to the domestic economy – dropped by 1% by the close of the week, whereas the FTSE 100, whose companies produce nearly all their profits overseas, rose by 1.1% in the same period.

Despite the fact that Sunak made a number of concessions to help ease the persistent cost-of-living crisis, it’s uncertain as to whether these will be sufficient to both tackle rising inflation and have a veritable impact on the livelihoods of those most affected.

BlackRock commented:

“Sunak met low expectations in his Spring Statement, with a 5p cut to fuel duty, removal of 5% VAT on solar panels, and a hike in the lowest National Insurance threshold. With the cost-of-living front and centre in most national political debates at the moment, this generally didn’t deliver on cross-party calls to soften the blow – with UK inflation now at 6.2% YoY and real household disposable income expected to contract by the greatest amount since the 1950s.”

One of the key communications on the day was that the basic rate of income tax would fall to 19% in 2024/25.

Paul Dales, Chief UK Economist at Capital Economics, said:

“This still leaves households having to absorb about a £20bn hit to their real disposable incomes from rising food, petrol and utilities prices by the end of 2023.”

He noted that the Chancellor could have done more to help ease the increasing cost of living, but observed: “He appears to be holding some cash back until closer to the 2024 election for political reasons.”

Last year, Sunak declared that many tax allowances and bands would remain frozen until 2026. In light of rising inflation and wages, this decision may, in fact, provide more tax for the government than previously expected. In March 2021, the Office for Budget Responsibility (OBR) surmised that the personal allowance and higher-rate tax threshold freezes would supply £8.2bn a year by 2025/26. Last week, the Institute for Fiscal Studies (IFS) calculated that, based on the most recent forecasts, that figure could amount to as much as £21bn a year.

Wartime worries

Meanwhile in Ukraine, the crisis continued to play out. Some worry that the tragedy may trigger a global recession. Felipe Villarroel, Fund Manager at TwentyFour Asset Management, believes, however, that these fears could be overblown:

“Under the assumption that this conflict does not escalate into a direct confrontation between Russia and NATO, and that peace is eventually achieved (with commodity prices returning to some sort of normality even if this is higher than pre-war), we do not believe the world is headed for recession.”

Broadly speaking, the S&P 500 continued its recent recovery – rising 1.8% over the course of the week. In Europe, the MSCI Europe ex. UK index dropped by -1.0%, due to the war in Ukraine continuing to weigh heavily on investor sentiment.

Wealth Check

It used to be the case that everyone knew what their retirement would look like – but those days are now long gone. Increased pension freedoms and the abolition of the compulsory retirement age are just a couple of factors potential retirees have to deal with.

The advantage of this is that it has gifted us more flexibility as regards our long-term plans. For instance, you might wish to retire early, start up a business, travel, or pass on everything to your children.

The flipside, however, is that such flexibility can give cause for concern along the way. After all, this freedom of choice means greater responsibility for the financial planning of your later years.

This is where the value of professional financial advice comes into its own.

Gearing up for your goals

A financial adviser can ease your concerns and boost your confidence. They’ll begin by taking the time to get to know you and better understand exactly what your goals are.

Many individuals get caught up in searching for those ‘quick-win’ investment opportunities. However, good advice is about more than just the numbers or the technical aspects of finance, as important as these are. It’s also about the ability to contextualise everything and align your financial plan to suit your goals.

Avoiding emotional decisions

When life throws you a curveball, you might be tempted to make short-term decisions – these are likely to be driven by behavioural biases that could lead to long-term repercussions.

The same can be said when it comes to external influences – for example, the current instability on the financial markets. These can often be unsettling, particularly if it’s unclear how the world might look in a few months or years down the line.

On the other hand, your adviser knows to tell you it’s perfectly normal to see such volatility. It’s important to think in decades, not days, and to hold your nerve and keep hold of your long-term objectives.

Being confident

Regardless of the situation, a financial adviser will be able to help you navigate the most relevant course of action according to your circumstances. This might involve making some adjustments as you go along, but it could also mean just holding tight and riding it out.

Nowadays, many people find that they speak to their adviser more regularly, given that it’s so easy to jump on a video call for a quick update.

This can be one of the most useful things about advice: understanding that your adviser is always there to give you confidence that everything is on track.

The Last Word

“Our response to the immediate crisis in Ukraine has been unwavering. But we must be equally bold in response to the deeper, and more fundamental challenge Putin poses to our values. We must show the world that freedom and democracy remain the best route to peace, prosperity, and happiness.”

– Chancellor Rishi Sunak discusses Britain’s response to Russian actions in Ukraine during his Spring Statement.

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

BlackRock and TwentyFour Asset Management are fund managers for St. James’s Place.

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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