WeeklyWatch – Decisions depend on pending Budget
22nd October 2024
Stock Take
Big shifts in the upcoming weeks?
Investors and the UK general public wait with anticipation of the announcement of the current Labour government’s first Budget at the end of the week. And across the pond, voters are preparing to go to the polls, as the presidential election takes place in just two weeks’ time. The upcoming weeks are hugely significant for both nations and investors worldwide as they face great uncertainty until both events have taken place. Having said this, equity markets in both countries rose last week.
The ONS reveals UK inflation figures
There was a 1.27% rise for the FTSE 100 on the back of the news that there was a continued fall in inflation in September. The Office of National Statistics (ONS) revealed that headline CPI was only 1.7% in the previous month, compared to the 2.2% recorded in August – distinctly below the Bank of England’s 2.0% target. Significantly, it also marked the first time the CPI was below 2.0% since 2021.
The ONS cited the biggest contributor to the falling inflation figure as transport, including motor fuel and air fares.
In a similar trend, core inflation, which doesn’t include energy, food, alcohol and tobacco, was at 3.2% over the same period, down from 3.6%.
Assuming little before the Budget
The ONS’s data backs up the prediction that the Bank of England will make further reductions to interest rates at their next Monetary Policy Committee meeting on 7th November. But as the Budget announcement gets ever closer, investors are holding back on making too many assumptions regarding another interest rate cut.
The Budget isn’t being announced until next week, but we can expect tough measures with the warnings that have already been issued or hinted at by the government. Several tax rises have been at the forefront of discussion and have fed wide speculation.
One of these is a predicted increase in National Insurance contributions from employers. St. James’s Place Divisional Director of Retirement & Holistic Planning, Claire Trott, commented:
“It has been reported that a 2% raise in the rate could bring in nearly £17bn to the Treasury which would go a long way to address the fiscal challenges. However, the impact that it will have on businesses that are highly dependent on workers, such as the service industry, would mean that the hardest hit industries will reconsider future staffing levels or even pay rises come the new year.”
The polls are tightly contested – what does this mean for the US?
We’re fast approaching the start of November, and all eyes are focused on one thing and one thing only: the presidential election. Polls are close between the two candidates; however, recent betting odds suggest that there’s been a shift in favour towards Trump. With roughly two weeks to go, the race is very tight, and much can still happen until the votes are in.
But it’s not just the presidential election that’s set to shape the nation. In the Senate and Congress, there are many seats up for grabs. Who controls the houses of Congress will have a direct effect on the ability of the presidential candidate to get their policies through.
Although there is much uncertainty surrounding the US election, their equities have continued to advance, with the S&P 500 finishing the week up 1.2% which was, in part, thanks to strong company results.
Reviving efforts in place for the EU
A second straight interest cut was delivered by the European Central Bank at their policy meeting last week, where the key deposit rate was reduced by 0.25 percentage points to 3.25%.
These actions came on the back of an equivalent move in the previous month. The Bank has now cut rates for a third time from their peak levels. The latest cut came as a result of the downgraded inflation figure from September when it was reduced to 1.7%, more than half a percentage point below August’s recorded levels.
The continent has been engaged in an ongoing struggle with economic stagnation in a number of economies, with Germany being the largest economy in this group. By reducing interest rates, borrowing money will be cheaper and will boost higher levels of spending, consequently encouraging economic growth.
The lower inflation figures alongside the economic slowdown meant that it was widely expected that there would be a rate cut, meaning there wasn’t a dramatic reaction from the markets. Additionally, the MSCI Europe ex UK index increased by 0.2% as the week went on.
A quick word about China
The nation’s central bank announced further support measures and, as a result, Chinese shares lifted.
Wealth Check
Inflation impact vs pension payments
Inflation is now just under 2.0%; however, consumer prices are still very high, and a large number of households are having to keep a close eye on their finances. The Scottish Widows Retirement Report 2023 stated that the number of people reducing their pensions or savings contributions has increased from the previous 2023 figures to 13%.1
The Senior Propositions Manager at St James’s Place, Tony Clark, said:
“We’re not out of the woods yet, but if you’re looking at where you could make savings, pausing your pension should be one of your last resorts. You could lower your contribution, or look for other smaller economies you could make, before pressing pause on your pension completely.”
Know the facts, don’t be hasty, evaluate the options
Pausing payments into your pensions can be tempting, especially as pension contributions aren’t compulsory in the UK – and depending on your stage in life, you could be decades away from accessing your savings. When you start to feel a financial pinch and meeting everyday household costs becomes difficult, one of your short-term options may be to halt your pension payments. But before you do this, it’s important that you’re aware of the facts.
Reducing or stopping your pension payments may make meeting short-term needs more attainable; however, this decision can have a significant impact on your standard of living in years to come, particularly when your other options are far fewer.
Firstly, you won’t benefit from the tax relief that the government pays on those contributions. The current relief is 20% for basic rate taxpayers, 40% for higher and 45% for additional taxpayers.* Additionally, you may also risk missing out on the top-up payments that a lot of employers add to employee pension plans.
Secondly, the money you put towards a pension benefits from the power of compounding. This snowball effect takes place when any growth in investments held in your pension goes on to generate its own growth. By stopping your contributions abruptly and completely, the value of your pension won’t just be affected by the loss of the money paid in, but it will potentially lose any compounding growth from money that could have been paid in. Ultimately, you could be losing out a lot more than you realise.
By seeking out financial advice with Wellesley, we can advise and help you plan for every stage of your financial journey. Get in touch with us today.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.
*This is on the basis that any tax relief over the basic rate is claimed via your annual tax return.
Source:
12023 Retirement Report, Scottish Widows, June 2023. (The survey included general questions on pensions and retirement planning and was carried out online by YouGov Plc across a total of 5,072 adults aged 18+, weighted to be representative of the UK population.)
The Last Word
“Unless you put Britain on a stable economic and financial path, we’re not going to be able to get that investment in. And that will mean some difficult decisions, including on taxation.”
– Rachel Reeves, UK Chancellor, as she gives further indication that the Budget will include a number of tax rises.
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.
Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies.
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Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
SJP approved 21/10/2024