17^th October 2023

Stock Take

Last week, investors met with a challenging environment due to geopolitical concerns and conflicting economic reports across the West.

UK economy shows modest recovery in August

The Office for National Statistics in the UK said that monthly GDP increased by 0.2% in August while simultaneously lowering its estimate for July’s result from -0.5% to -0.6%.

Due to a combination of industrial action and unusually wet weather, which kept people indoors and slowed activity, July was especially bad for the UK economy.

A strong services sector played a role in August’s result. The market gained some confidence as the positive figure decreased the likelihood of a recession.

Hetal Mehta, the Head of Economic Research at SJP, responded to the news by saying:

“The GDP data was broadly in line with what we and others were expecting – some bounce back was likely given the perfect storm of wet weather and strikes pulling GDP down in July. It is clear, however, that the economy remains weak.

“Monthly GDP has trundled sideways since the beginning of 2022 and the full effect of the Bank of England’s rate increases is yet to feed through. Credit conditions have been tightening and some softening in the UK labour market is evident – these will most likely keep the UK economy on a weak footing in the months ahead.”

Tough choices in upcoming Autumn Statement

Considering the Autumn Statement is just over a month away, UK Chancellor Jeremy Hunt moderated expectations of tax cuts this week. At the annual meeting of the IMF, he said:

“The fiscal position has worsened since the spring, and I will have to take difficult decisions in the Autumn statement.

“The main reason things are more challenging is because interest rate projections for all economies have gone up. The UK is not immune to those changes. We are likely to see an increase in debt interest payments of £20–30bn and that’s a huge challenge.”

Prior to the Autumn Statement, the Bank of England will meet again at the beginning of November to discuss interest rates. New data on the labour market and inflation will be released before the meeting, which is likely to influence the Bank’s decision.

US inflation holds steady in September

Inflation in the US was 3.7% in the year ending in September, which is the same rate as in August. This was a little more than anticipated, in part due to a greater-than-expected effect of rising electricity prices.

For those hoping interest rates won’t rise any higher, the fact that core inflation – which excludes volatile goods like fuel – dipped down from 4.3% to 4.1% was good news. Instead, with interest rates likely to stay elevated for a while, these inflationary numbers support the idea that rates will not drop for some time.

Middle East unrest impacts global markets

The current unrest in the Middle East poses a challenge to all markets.

Amundi’s Group Chief Investment Officer, Vincent Mortier, stated:

“The impact on markets should be limited as long as the conflict remains local and does not spread. It is marginally positive for the defence and the oil sectors, but slightly negative for some others such as aviation and long-haul travel, given the complications to travel to Israel and flying over the region.

“In the US, it is seen as a catalyst to have the government shutdown risk lifted in order to vote for some additional help to Israel. However, the biggest risk is to oil prices as we think the ongoing relaxation of US sanctions on Iranian oil sales will become harder. At the same time, once the immediate conflict will be under control, Israel could decide that now is the time to attack Iran’s nuclear capabilities – with the possibility of a larger regional conflict erupting – and this could lead to higher oil prices.”

Wealth Check

You might’ve heard the phrase ‘financial well-being’, but what exactly does that mean?

Financial well-being is about having the confidence that you can make ends meet, manage your debts, deal with emergencies and continue moving towards your long-term financial goals. We often experience more happiness, a healthier community, robust businesses and a thriving national economy when we feel in control of our finances.

A quarter of UK adults have less than £100 in savings, according to the Money and Pensions Service’s (MaPS) most recent study.¹

Our relationship with money is permanent. Because of this, the discourse has to focus on our financial well-being. In order for people to understand how to manage their money and make informed choices, financial advice is key.

The more capable and self-assured we feel financially, the better the nation will be. Positive changes to financial services products, services and regulations are already helping people of all ages in developing their confidence and financial literacy.

According to a 2022 poll by the Centre for Social Justice, almost half of the UK population (44%) believe they would be in better financial health if they were better taught on how to handle their budgets and expenses.²

Many children grow up not understanding how to save or set aside money, and many people lack the confidence to even discuss money with family and friends. The 2022 MaPS report makes the scale of the problem clear. It’s not surprising that as many as four out of five of us find it difficult to discuss money, since it can be difficult to acknowledge that you’re having financial difficulties in the first place or that you don’t really know the basics.

Where does a person’s sense of their financial well-being fit into their overall well-being? Feeling confident and in control financially is very important. That could mean having the courage to deal with your debt face-on, to make investments or something in between.

Mental health and money are intertwined. People who worry about money notice that stress adversely affects their mood, focus and sleep patterns. It may be more difficult to plan, make decisions or communicate if you already have a mental health problem, which will make managing your money much harder.

Having financial stress can cause people with mental illnesses to tip into crisis. A financial adviser can offer guidance during these trying times, and it can sometimes be incredibly relieving to speak honestly with someone who is not directly involved.

Financial advice that is both sensible and practical might help you get back on track and regain control.

Sources:

¹Money and Pensions Service, November 2022

²The Centre for Social Justice and Lowell, January 2022 (Poll carried out by Opinium, and based on a sample size of 4,000 people)

The Last Word

“I have been a politician for many years. I’m an athlete. Never in my life have I been so happy about taking seemingly second place.”

– Donald Tusk celebrates after exit polls suggest his party and its allies earned enough seats to form a government in the Polish election over the weekend.

Amundi and GMO are fund managers for St James’s Place.

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.

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SJP approved 16/10/2023