The FCA’s 2024/25 business plan – here are the key issues you need to know
The City regulator, the Financial Conduct Authority (FCA), has published its business plan for the 2024/25 tax year.
The plan is a chance for professionals working in and around financial services to gain key insights into the regulator’s thinking and planned areas of focus for the year ahead.
This year’s business plan reaffirms a three-year project which focuses on the delivery of Consumer Duty.
What is Consumer Duty?
Consumer Duty is a landmark set of standards introduced by the regulator to improve general consumer protections in financial services.
In its own words it requires firms “to act to deliver good outcomes for retail customers”.
Consumer Duty came into force on 31 July 2023. So, many firms are still adjusting to the end implications for how they serve customers.
Nikhil Rathi, Chief Executive of the FCA, comments: “We’ve already made significant progress in delivering against the bold vision we set out in our strategy two years ago, including the game-changing introduction of the Consumer Duty and proposing the most far-reaching reforms to wholesale market regulation and the listing regime in decades.
“We remain resolute in supporting the vital role the financial sector plays in the UK’s long-term economic growth, embracing the potential benefits that technology presents both for us and the firms we regulate, while also continuing to protect consumers and ensure market integrity.”
FCA business plan 2024/25
So, where does the new business plan come in? The FCA has used this year’s business plan to reaffirm its commitment to continually test firms on their adherence to Consumer Duty principles and has reminded firms that it isn’t a case of ‘do it once and you’re done’.
The regulator says it is building a data-led approach to this to weed out firms that aren’t meeting the standards it now sets. In its press communication it describes its approach as “assertive” – a clear warning to companies dragging their feet.
What is really important here is ensuring your business is fully compliant with the wording, and spirit, of Consumer Duty. The standards have specific individual accountability clauses (Individual Conduct Rule 6) which target senior management and executives to ensure accountability.
Legal and professional accountancy firms are both impacted by the standards. For that reason, it is important to ensure you are meeting the required level of compliance. Working with a regulated advice business which has deep resources and experience in compliance matters is essential in this regard.
Ultimately, Consumer Duty isn’t going to be a one-off welfare check to ensure your business is doing the ‘right thing’. It will be an ongoing process of ensuring every aspect of your work is geared toward meeting the needs of the end consumer. Ensuring ongoing compliance, and being able to produce evidence of that compliance, is critical.
Savings rate cuts on the horizon – what you should do
The Bank of England Monetary Policy Committee (MPC) continues, for now, to hold the base rate at 5.25% after a run of fourteen consecutive interest rate hikes.
However, inflation is now slowing back toward the Bank of England’s target of 2%. What does this mean for savings rates?
If the bank does cut its main rate, then the savings market will follow suit and likely slash savings account offers. This will have a negative impact on any cash held in these kinds of accounts, particularly if that money is set aside for long-term goals.
The MPC will want to be sure receding inflation is a robust trend before it makes its first cut, but with the UK’s economy at a standstill at best, it is increasingly likely we’re in for a cut in the next few months.
What does that mean for cash?
Savings rates currently higher than usual because inflation has been high too. There is one main lever the Bank of England can pull to combat that inflation: hiking the base rate.
Now that inflation is slowing considerably, the bank is actively considering easing off this lever. This will directly impact the cash savings market as these rates take their lead from the bank’s main policy rate.
Is cash really king?
Cash plays a role in a diversified financial portfolio. Key is ensuring it is being put to the right use and at the appropriate life stage.
Reliance on cash increases in retirement as you start to draw an income from your retirement pot rather than your salary. You may opt to hold some cash in savings and fixed term deposit accounts to meet certain income needs.
Using cash in this way means you don’t have to sell other investments if the market conditions are not favourable at that time.
Likewise, if you know you have a big outlay in the next 12 months, holding cash in an easy access savings account makes sense.
So, cash is definitely ‘king’ when it comes to providing short-term access to the means to cover emergencies and short-term spending needs.
Investing, however, is a much more valuable way to ensure your financial goals are met over the long term.
Holding some cash as part of a wider investment portfolio can give more flexibility in times of market volatility – both in cushioning against potential losses and increasing the opportunity to take advantage of buying unusually cheaper assets, without having to sell first or wait for a sale to complete.
However, ultimately this needs to be just one part of a much wider investment portfolio that is prepared for long-term growth and income generation.
What is the right amount of cash to hold?
There is no one ‘right’ answer. As the question ‘how much cash should I hold in my portfolio?’ sits firmly in the ‘how long is a piece of string?’ camp.
With rates on cash set to fall, minimising your cash requirements is important to ensure your overall portfolio has the best opportunity it can to meet your goals.
Everyone has their own investment goals and timeframes, their own risk tolerances, different income sources – taken together, those factors will determine how much cash is the ‘right’ amount to hold for your personal circumstance.
If in any doubt about how you should be using cash in your portfolio, contact your financial adviser so that you can be safe in the knowledge the cash you hold is indeed at the right level and in the right place for you and your stage in life.
Rainy-day funds – how to manage an emergency cash pot
Having a rainy-day fund is a lesser discussed but still important aspect of managing a wider investment portfolio.
It can seem counterintuitive to think cash might have a role within a wealth growth strategy that needs stronger growth opportunities over the long term in order to meet your financial goals.
However, cash does have a role to play and central to that is a rainy-day fund.
What is a rainy-day fund?
A rainy-day fund is a pot of cash you can draw upon in times when you need quick access to cash.
What this ‘need’ is depends on your personal situation. At one end it could be for a small emergency such as your car breaking down and needing a costly repair.
At a more severe end of the spectrum a rainy-day fund can give you protection and breathing space were you to lose your job through redundancy or have a loss of income for any other reason.
A rainy-day fund is also relevant in the context of retirement income. If you’re reliant on the income from your investments to fund your lifestyle, then this can sometimes come with market fluctuations that affect your portfolio.
In this regard, a rainy-day fund is important because it can help you access cash reserves when investment markets are down and prevent you needing to sell assets and crystallising losses unnecessarily.
How to structure a rainy-day fund
The first question to ask yourself with the fund is how much you think you might need. Once you’ve met this target, make sure to revisit the amount you have in the pot to ensure it keeps up with your changing costs.
Remember, putting too much of your assets into cash can have a negative impact on your wealth growth, so there should be a limit to what you might need to get by in an emergency, or in the short term.
In terms of where you keep your rainy-day fund, easy access savings accounts will be your first port of call. While interest rates on such accounts are better than they used to be, they are likely to come down in the near future, heightening the need for a limit on how much exposure to cash your portfolio has.
For the purposes of a rainy-day fund, easy-access savings accounts are better than a current account because typically they will pay better rates, while still being readily accessible.
Such accounts are also protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per eligible person, per bank, building society or credit union. If you intend on having more than this set aside in cash, then it is essential to divide it up into different accounts.
When it comes to whether you should keep this cash within a tax-free ISA wrapper – it is important to consider that within the wider context of your portfolio.
The ISA allowance should chiefly be set aside for long-term investments rather than short-term cash funds. Your long-term earning and growth potential will be much better served by the tax-free protection an ISA offers.
Savings come with a tax-free £5,000 incentive on earnings from interest, but you’ll only be eligible on this if your other earned income is below £17,570. This includes your personal allowance of £12,570 so for every £1 you earn above the personal allowance you’ll lose £1 of savings interest allowance.
If you’d like to consider how best to structure this it is important to discuss with a financial adviser first in order to ensure your wealth, be it cash or investments, is organised in the most efficient way possible and to ensure you can hold cash for a rainy day without it having a detrimental impact on the long-term prospects for your portfolio.
New tax year checklist – ISAs and tax efficient savings allowances to consider now
The new tax year is upon us, and with it a whole host of new rates, charges and allowances to consider when it comes to best management of your financial portfolio.
There is a lot to consider when it comes to the allowances available and the potential pitfalls of tax charges, rates and limits, so it is important to seek professional financial advice if you need help to make the most of the opportunities.
Here is a key checklist of new tax year allowances, benefits and pitfalls you should be aware of.
Pensions lifetime allowance
The pensions lifetime allowance (LTA) has finally been fully abolished and replaced by new rules. Although the first step was made last year to remove the charge associated with the LTA, it has now been fully abolished by law.
This means, currently, there is no limit on how much you can accrue into a pension. There are, however, two new allowances that you should be aware of that have replaced the old one.
First of these is the lump sum allowance (LSA). This caps the tax-free lump sum at £268,275. This means in effect that the tax-free lump sum you can take from your pension is now 25% – up to a limit of £268,275.
The second allowance is the lump sum and death benefit allowance (LSDBA). This is set at £1,073,100. This allowance is relevant when a pension is paid out on death or due to serious ill-health.
The caveat to these new rules is that while this is the current regime, it might not last long. The UK is due to have a General Election between now and January 2025 – which the Labour Party is expected to win. Labour has committed to reversing the removal of the LTA, although it has been warned this would be difficult and complicated.
The party has already been forced to admit it won’t be able to create profession-specific lifetime allowances (for instance, for headteachers and doctors), one of the key concessions and reasons for the LTA abolition in the first place. It remains to be seen what will actually happen.
National Insurance
Jeremy Hunt cut National Insurance for the second time at his most recent Budget. The two cuts in tandem bring National Insurance down from 12% in 2023 to now just 8%.
Hunt has said his ambition is to remove the charge completely, but this is unlikely to happen in the next 12 months.
Reducing rates of National Insurance while maintaining income tax thresholds to increase revenues – a phenomenon known as ‘fiscal drag’ – is increasingly pushing the burden away from workers and onto retirees. This is because only people in work pay National Insurance – but everyone pays income tax on earned income. As such it is essential to use tax-free allowances in tax wrappers such as ISAs for your wealth and income to minimise the income tax liabilities.
Child benefit
For anyone with a young family and on a higher income, the Chancellor made some key changes to child benefit that could have a positive impact on your income.
Child benefit is paid at £25.60 a week for the eldest child and £16.95 per week for each subsequent child. Until 2023/24 child benefit entitlement was capped at £60,000 of income per parent. Beyond £50,000 the Government tapered the entitlement which meant the higher your income was above £50,000, the less you’d receive. If one parent’s income was above £60,000 then the benefit was withdrawn completely.
Now, however, the thresholds have been shifted. Child benefit entitlement is available for anyone earning up to £80,000 – with the taper starting at £60,000. This means the taper only limits child benefit at half the rate of the previous taper as your earnings increase.
Even if you don’t need the extra cash, it is worth claiming as the money can be set aside for a rainy day or put to use elsewhere. Just be aware if you earn over £60,000 then you’ll have to file a tax return and HMRC will claw back some entitlement – so ensure you set aside money to pay the tax bill.
The Treasury is also looking at changing how households are assessed for child benefits, but this is not set to come into effect until 2025/26. For instance, one family where a parent earns £80,000 and the other earns nothing will receive no benefits. However, a family where two parents both earn £60,000 – for a combined income of £120,000 – will receive the full benefit.
ISAs
There has been no change to the current overall ISA allowance for 2024/25 – but this is something to be aware of in and of itself. As with income tax thresholds that have been frozen, the ISA allowance has been held at the same level for several years now – leaving cash exposed to fiscal drag.
It is essential, with the further clampdown on Capital Gains Tax (CGT) and dividend allowances, to ensure you’re maximising your ISA allowance every year. This is also essential from an income tax minimisation perspective too, as mentioned above.
Capital Gains Tax and dividend allowances
The Capital Gains Tax (CGT) allowance has been cut in half for tax year 2024/25. Last year it was set at £6,000 and is now just £3,000. This follows on from a cut from £12,300 the year before, marking a substantial squeezing of the allowance for capital gains.
Similarly to CGT, the dividend allowance has been slashed in half, to just £500 for 2024/25. What is essential here is to look for ways to mitigate the effects of CGT and dividend taxes. This is best done in a product such as an ISA which is sheltered from both.
If you would like to discuss any of these key allowances, changes or liabilities don’t hesitate to get in touch with us to discuss your options.
The World In A Week - First mover advantage
Written by Millan Chauhan.
The latest figures released by the Commerce Department Bureau of Economic Analysis in the U.S. revealed that the personal consumption expenditure (PCE) price index figure increased by 2.4% in the 12 months to January 2024, in line with expectations. The core PCE price index (which excludes food and energy) rose 2.8% in the 12 months to January 2024. If you remember in mid-February, it was announced that US inflation figures for the 12 months to January came in at 3.1% which was above expectations of 2.9%. The U.S. market responded positively to the latest PCE price index figures and the fact they were in line with expectations, as the S&P 500 returned +1.4% last week in GBP terms. The Federal Reserve are set to meet on the 19th-20th March where it will decide the trajectory of U.S. interest rates. We are set to receive one further U.S. inflation print on March 12th, ahead of this much anticipated meeting.
Elsewhere, in Europe, the inflation rate declined to 2.6% in the 12 months to February 2024, slowing from 2.8% in the previous month, however this was still above expectations as inflation is proving to be stickier than initially expected. Energy prices declined 3.7% over the month but food, alcohol and tobacco inflation remain high at 4% and services inflation still remains at 3.9%. Core inflation in Europe was announced at 3.1% with expectations at 2.9% and is a critical measure used by the European Central Bank who are set to meet this Thursday where expectations are that interest rates will be held at 4.5%.
In the UK, house prices increased for the first time since January 2023 according to Nationwide’s House Price Index which rose 1.2% in the 12 months to February 2024 as borrowing costs declined.
There has been much speculation as to what the UK Budget has in store for us with talks of cuts to personal taxes and national insurance. The Chancellor of the Exchequer, Jeremy Hunt is set to unveil his list of measures on Wednesday.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 4th March 2024.
© 2024 YOU Asset Management. All rights reserved.
HMRC in clampdown on ‘side hustle’ tax dodgers
Brits selling second-hand goods or letting out their property online are being targeted by the taxman as part of a clampdown on those not declaring second incomes.
Under the new measures, online marketplaces such as eBay, Amazon, Etsy, Depop and Vinted will be required to report how much money their users are making and report it to the UK’s tax authority.
The new measures are an attempt to weed out those who are making taxable income on a so-called ‘side hustle’ that they have not declared.
An HMRC spokesperson said: “These new rules will support our work to help online sellers get their tax right first time. They will also help us detect any deliberate non-compliance, ensuring a level playing field for all taxpayers.”
Who is affected?
The crackdown is aimed at those who make a second income of more than £1,000 a year online, such as selling secondhand clothes on sites such as Depop and Vinted, letting out their property on Airbnb or delivering takeaway food for the likes of Deliveroo.
Once sellers pass the £1,000 threshold, they may have to register for self-assessment and pay tax on their earnings.
Does that mean I will have to pay tax on things I sell online?
Not necessarily. It all hinges around whether you are deemed to be a ‘trader’ or not, according to the Low Incomes Tax Reforms Group (LITRG).
For example, if you’re selling unwanted personal items such as old children’s clothes or toys online as a one-off, then you are unlikely to be deemed to be ‘trading’, LITRG says. These types of transactions are ‘generally not taxable’, even if you make a significant amount of money, it adds.
However, you may be liable for tax if this is deemed a regular activity and you’ve crossed the £1,000 threshold.
When does it come into effect?
The new rules came into effect on 1 January, although online marketplaces will not start reporting user data to HMRC until January 2025.
Why has this been introduced?
The market for second-hand goods, particularly fashion items, is booming. Websites such as Depop and Vinted have reported surging sales at a time when many fashion retailers have struggled.
A recent report by US marketplace ThredUP suggested the global market for second-hand apparel alone could more than double to $350bn (£276.3bn) by 2027.
Given that many of those who sell on these marketplaces are individuals and not businesses, it has led to concerns that many are not paying tax when they should.
Is this a new law?
Yes and no. There are technically no new tax obligations on individuals: if you made £1,000 or more selling goods online before now and were deemed to be ‘trading’, you likely already had to pay tax on it.
The major change announced this month is the requirement for online marketplaces such as eBay and Amazon to report their users’ data to HMRC routinely.
Do I need to do anything?
Victoria Todd, Head of LITRG, says: “The new rules have caused a great deal of confusion, but they simply mean that HMRC are receiving more information from online platforms than they were before. If you are following existing rules and declaring your income as required, then you don’t need to worry or do anything differently.”
However, if you are unclear whether you should be paying tax on income from goods you sell online, then it’s worth contacting HMRC as soon as possible.
Tax year end: Strategies to safeguard your finances
As the end of the current tax year draws near, we are about to enter the third year of the six-year freeze on income tax thresholds, a move that has significantly altered the fiscal landscape. The proportion of adults paying higher rates of income tax has risen from 3.5% in 1991-92 to an expected 14% by the 2027–28 fiscal year, according to the Institute for Fiscal Studies.
For those recently finding themselves in the higher tax bracket, as well as for those who have been navigating this territory for some time, here are four key strategies to help manage your finances more effectively and reduce tax liabilities:
1. Maximise pension contributions: Contributing to your pension not only prepares you for a secure future, but also offers immediate tax benefits. For higher-rate taxpayers, there is £40 in government tax relief available for every £100 contributed. It’s important to remember that while pension withdrawals are taxable, up to 25% can be taken as a tax-free lump sum, offering a strategic advantage in tax planning and potentially placing you in a lower tax bracket upon retirement.
2. Utilise pension contributions to preserve Child Benefit: For earners exceeding £50,000, the High Income Child Benefit Charge applies, progressively reducing Child Benefit. By making pension contributions, you can lower your taxable income, potentially mitigating or completely avoiding this charge, thus preserving your Child Benefit.
3. Invest in tax-efficient savings: With forthcoming reductions in capital gains and dividend allowances, ISAs and pensions become even more attractive as tax shelters. These vehicles allow you to fully utilise your annual allowances and protect your gains from tax liabilities.
4. Leverage spousal allowances: Married couples enjoy the benefit of double the allowances for ISAs, capital gains, personal savings, and dividends. Transferring assets between spouses can maximise the use of these combined allowances, offering potential tax savings and enhancing your financial strategy.
Beyond these strategies, keeping abreast of changes in tax regulations is crucial. The tax environment is constantly evolving, highlighting the need for dynamic financial planning and expert consultation.
Seeking tailored advice?
We are committed to empowering you with the knowledge and resources necessary for informed financial decision-making. Whether it’s tax planning, pension contributions, or investment strategies, our team is here to provide personalised guidance suited to your unique financial situation.
Contact us
Whether you’re an existing client or new to our services, we’re equipped to support your tax year-end planning and set you up for the year ahead. Why not arrange a meeting with one of our advisers, providing an opportunity to see how our bespoke advice can meet your financial needs. Book your session today to begin shaping your financial future.
Important: When investing your capital is at risk. The value of pensions and investments may fall as well as rise. Tax treatment varies according to individual circumstances and is subject to change. Tax advice is not regulated by the FCA.
The best approach for working with vulnerable clients
Working with clients who may be vulnerable, or show signs of vulnerability, is not uncommon – especially when offering services to those of an advanced age or with complex personal circumstances.
There are important signs to look out for with vulnerability and ways to best approach the issue to ensure best outcomes for clients.
There are important financial regulatory considerations to be made around vulnerable clients, too. City watchdog the Financial Conduct Authority has a specific definition of what constitutes a vulnerable customer:
“A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care.”
The FCA refers to vulnerability among clients as creating a “spectrum of risk” which professional services providers need to be keenly aware of and able to deal with.
Complexity of vulnerability
Vulnerability is a complex problem. When a client should be classed as ‘vulnerable’ isn’t easy to define. The FCA says around 25 million people in the UK exhibit at least one or more signs of vulnerability.
The regulator’s 2022 Financial Lives research defines vulnerability as including low financial resilience, poor health, negative life events and low capability as all pertaining to increased vulnerability.
Health issues are also a clear indicator, but diagnoses such as cancer or dementia have varying effects on an individual’s wellbeing. The prognosis of these illnesses can also lead to some important financial decisions that need to be made.
Such illnesses often initiate a process such as a lasting power of attorney (LPA), a will update, or other legal work change that will have important financial considerations and implications.
Losing a partner is another trigger for vulnerability and the need for clients to seek out professional legal services, particularly if they’re dealing with the estate or other implications from the loss of a loved one.
In these circumstances it is essential to use the expertise of a financial adviser to better discern choices and planning for the vulnerable client in question.
This is important both for the regulatory implications of how you treat that client, but also to ensure the overall health, wellbeing, goals and outcomes for the client are met in the best way possible.
How to look after a vulnerable client
This is a very tricky issue as looking after the needs of a vulnerable client can require patience, empathy and diligence on the part of the service provider.
Within your business, it’s critical you ensure team members who deal with clients and the general public more widely are trained and well-versed in spotting the signs of vulnerability. The FCA has clear guidance on this.
The first step is to ensure your team understands the issue of vulnerability, its scope and how it affects people in their day-to-day lives.
Second, staff should be skilled and trained to offer practical and emotional support to customers who could be vulnerable. Especially important is giving frontline staff the tools and training they need to manage such a client.
Third, practical steps to ensure the wellbeing of the client is protected is key. Products, customer service and communication all need to be empathetic and easy for clients to understand.
When a vulnerable client, their relative, guardian or other trusted third party approaches your business to take care of a specific matter, understanding what their wider needs may be and if broader financial advice should be considered is really important.
Instead of providing singular services this will help them to meet their broader needs and ensure the best outcomes possible in the circumstances.
Law firm reprimanded for misleading financial promotions – how to get yours right
A Dorset-based law firm has been castigated by the Advertising Standard Agency for misleading adverts with the communications banned by the regulator.
The firm, TMS Legal, promoted two adverts which claimed clients had successfully claimed thousands in compensation relating to car financing.
However, the regulator found the advert testimonials were provided by paid actors and were not genuine case studies of successful legal claims.
The firm specialises in mis-selling claims related to packaged bank accounts, according to the report in The Law Society Gazette. The firm removed the offending adverts and apologised, citing internal oversight for the failure.
The company had already been fined £45,000 by the Solicitors Regulation Authority (SRA) for client due diligence failures and making inaccurate claims.
How to get financial promotions right
While mis-selling cases might not be your day-to-day bread and butter, it is essential to get any kind of financial promotions right.
Financial services is (rightly) extremely carefully regulated. The rules around promotions are highly specific and compliance is a central function within financial firms in order to ensure they are not falling foul of the rules.
The scrutiny of financial promotions has also heightened considerably for social media in recent years, particularly in relation to so-called ‘finfluencers’ or financial influencers – a growing area of financial promotions in advertising.
Working with finfluencers can be an effective strategy for a firm looking to promote its services, but again it needs to be fully compliant and carefully managed to ensure potential customers are not misled.
Social media guidance is in the process of being revamped by the financial regulator too, underlining the fact that the framework for promotions is ever-changing, making keeping up with the latest developments even more essential.
The adverts in question were placed on TikTok by the firm – a growing social media platform that is coming under increasing scrutiny from regulators as the quality and content of advertising explodes.
Compliance puzzle
Promotions should be transparent and ensure truthful representations of case studies and results no matter the platform. While financial promotions are often useful ways to generate new business leads, they should not be taken lightly in their creation.
Legal firms looking to promote their services in the financial space would be best served by working with a professional financial partner in order to ensure full compliance and a successful campaign is possible.
Compliance is a tricky thing to get right, even for firms well-versed in the law. However, financial firms such as advice businesses are adept at following the carefully laid regulatory frameworks in place to protect both businesses and consumers.
Partnering with a financial advice firm to promote your financial-related services is a great way to ensure that promotions are fully compliant from the get-go.
Advice businesses take compliance as second nature and are extremely well-positioned to ensure campaigns are thoroughly vetted and maximise the potential to attract new business in the most compliant manner possible.
Partnering with an advice firm will open up a range of potential service possibilities too and increase the likelihood that a client will adopt more services for their legal and financial needs.
The World In A Week - Have we reached the summit?
Written by Shane Balkham.
UK inflation fell to below 5% in October, on the back of a sharp decline in energy costs. The monthly publication from the Office of National Statistics (ONS) showed a 2.1% drop in UK Consumer Price Inflation (CPI) from 6.7% for September to 4.6% for October.
A significant contributor to this fall was the fall in energy prices; over the year to the end of October, gas prices fell by 31% and electricity prices fell by 15.6%. Food prices were little changed for October.
This is a positive step bringing inflation back down to the Bank of England’s (BoE) target level of 2%. There are another three weeks until the Monetary Policy Committee of the BoE meets to discuss the path of UK interest rates, and it remains a delicate balancing act.
The US also had a pleasant surprise for inflation, with a fall greater than expected. US CPI for October fell from 3.7% to 3.2%, which was marginally below consensus expectations. The reaction of the US market was one of relief, with US Treasury yields falling and the stock market rallying.
Some commentators believed that this was an overreaction by investors and while inflation is certainly heading in the right direction, there will be challenges ahead. The US Federal Reserve meets a day earlier than the BoE, with the next decision on interest rate policy coming on 13th December.
It makes sense that the reaction from markets on October’s inflation readings was one of relief. However, central banks are known for not necessarily doing the right thing at the right time, and although there is optimism that we have reached the peak in the interest rate hiking cycle, we are still treading carefully in our investment decisions.
From policymakers to politics, where the US House of Representatives voted to avert a costly government shutdown last week. In a similar move to that of six weeks ago, the can has been kicked down the road until early in the new year. The proposal provides a two-step plan that sets up two new shutdown deadlines next year. US government funding has been divided into two different parts, with priority given to military construction, transportation, housing, and the Energy Department, which has a new deadline of 19th January 2024. Anything not covered in this first step would be funded until 2nd February 2024. Politics will certainly start the New Year in the spotlight and will likely remain there.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th November 2023.
© 2023 YOU Asset Management. All rights reserved.