The World In A Week - In Liz we Truss?
Written by Millan Chauhan.
Last week, the Federal Reserve’s Chair Jay Powell delivered a hawkish stance stating that higher interest rates are needed to combat inflation. With annualised inflation having reached 8.5% in July 2022, the Fed now faces a balancing act between controlling inflation and causing an economic slowdown through aggressive hiking. Following Powell’s address, we saw US stocks tumble with the interest rate sensitive segments of the market the hardest hit. This also quickly spread to other geographical equity markets and stuttered the summer rally we have seen in equity markets. In the US, we also saw new single-family home sales fall to their lowest level in two years as higher mortgage rates make owning a home less affordable.
In the UK, we saw the energy regulator Ofgem announce an 80% increase in the cap of household energy bills to £3,549, effective from 1 October 2022, which has been caused by higher natural gas prices and a more restricted supply following Russia’s invasion on Ukraine. There have been further energy cap increases planned with the cap expected to rise beyond £5,300 by January 2023. We are also in the middle of the Conservative’s leadership contest which has been dominated by the respective cost-of-living stance of Liz Truss and Rishi Sunak. Liz Truss remains the favourite heading into the final week, with the outcome of the race set to be announced on 5th September.
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 30th August 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Autumn is coming
Written by Shane Balkham.
Inflation continues to dominate investors thoughts and last week we had the UK’s rate of inflation climbing to 10.1% for July on an annualised basis, the first time the measure has registered a double-digit increase in more than 40 years. Prices rose 0.6% in the month of July, driven by the persistent increases in energy and food. Food inflation recorded 12.7% in the month of July, the highest rate for more than 20 years.
This data will certainly increase the resolve at the Bank of England to continue along the current path of interest rate hikes. Expectations for a further 0.5% hike at the next meeting have solidified. The quarterly analysis from the Bank of England in its Monetary Policy Report published at the beginning of the month, projected inflation to creep higher, with energy prices poised to soar with the energy price cap set to increase in October.
The situation continues to be highly politicised and whoever ascends to become Prime Minister will have to take measures to ease the pain being felt by consumers. This could mean using fiscal measures to subsidise fuel costs, while simultaneously tackling headline inflation. This scenario will undoubtedly add further pressure to an already stressful Bank of England.
The Bank of England is not alone. The minutes from the Federal Reserve’s meeting in July indicated that the Central Bank would continue to prioritise the fight against inflation ahead of economic growth for as long as it would take. Signals have become mixed, with the US inflation measures falling in July and the Federal Reserve minutes confirming a strong line on the battle to control inflation.
Even if elements of the inflation make-up are seeing signs of reducing pressure, it is clear that central banks will remain focused on fighting inflation, as they continue to play catch-up on a situation where they were caught sleeping. Cognisant of the ghosts of the past, central banks will not want to stop the rate hiking cycle too early and risk losing the loose grip they are perceived to have on inflation.
The end of the summer will be monitored closely, with the central bank committee meetings in September and the economic symposium in Jackson Hole, Wyoming next week. A political autumn of discontent with inflation to fight and a recession to avoid?
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 22nd August 2022.
© 2022 YOU Asset Management. All rights reserved.
Tax cut time? Here’s what Sunak and Truss are offering
The Conservative Party have decided to elect a new leader after Boris Johnson’s tenure as Prime Minister has come to an end.
But with the state of the economy in flux, the candidates need to be more careful than ever to emphasise their financial offerings to voters.
Here’s what each contender has said they would implement, and what that could mean for your money.
Rishi Sunak
The now former Chancellor, Rishi Sunak, was catapulted into prominence over his handling of the economy during the coronavirus pandemic.
From Eat Out to Help Out to the furlough scheme, Sunak was credited with staving off the worst effects of the lockdowns and fall out from the pandemic.
But the MP for Richmond in North Yorkshire has been widely criticised for his involvement as Chancellor in the subsequent economic issues triggered by the pandemic such as widespread inflation, soaring energy bills and raising taxes to pay for prior spending.
Sunak has pledged to cut the basic rate of income tax from 20% to 16%, but only by the end of the next Parliament – still seven years away. This would represent the biggest cut to personal taxes in around 30 years, were it to come to pass, and would save someone on an average salary of £32,000 around £777 a year.
However, if this level is matched in pensions tax relief, it would be a significant cut to the amount of tax relief anyone saving into a pension would get.
He has also committed to cutting that rate to 19% in 2024, but this was already announced before the leadership contest began.
Sunak has also promised to end VAT on energy bills should average prices rise above £3,000 per year, but this was only offered after initially declining to offer the cut. This would save the average household around £160 a year.
The former Chancellor has also promised to cut business rates in 2023. Beyond this however, he has been relatively quiet on financial policies, other than to criticise his opponent’s stances.
Liz Truss
The current frontrunner candidate Liz Truss has been vocal on her desire for the Bank of England base rate to move to a higher level. If she is made Prime Minister, she would couple this with significant tax cuts.
Tax cuts are the centrepiece of Truss’s offering and she has said she intends to “start cutting taxes from day one.” Her proposals add up to some £30 billion of cuts to taxes.
This includes scrapping the 1.25% National Insurance hike, and the 6% corporation tax hike which is due to be implemented next year.
The current Foreign Secretary has also pledged to scrap green levies on energy bills for two years to help households struggling to pay as prices soar.
Truss has also said she would include inheritance tax in a wider review of the tax system – looking at whether it is fit for purpose.
Truss says she intends to pay for the tax cuts by renegotiating the way the Covid-accrued debt is paid, making it a longer-term debt more similar to the way the Government paid back its debts after the Second World War.
While the contest is ongoing and more pledges are no doubt coming through the pipeline, readers must remember that these policy announcements are largely designed to appeal to the Conservative Party membership.
With the Bank of England predicting 13% inflation by the end of the year, whoever takes over at No.10 will no doubt have to adapt to the situation as it develops.
Energy bills set to worsen this winter – top tips on how to save
Energy bills are set to soar again this winter as the energy crisis in Europe worsens.
Prices have soared in the past year as demand surges – this has been greatly exacerbated by the conflict in Ukraine and ensuing tensions with Russia.
As a result, the current price cap on energy bills, as set by energy regulator Ofgem, is £1,971 having increased from £1,277 on 1 April.
But as announced on 26 August, this cap will now rise to £3,546 on 1 October.
In practice these figures are quoted for the ‘average’ home usage, so you could end up paying more (or less) depending on what you actually use in your home.
Although tricky, this means it is still possible to save money on your energy bills. There are a few ways of doing this.
Make changes to your home
The first, and more costly way to make long-term changes to your energy consumption is by changing the way your home uses, conserves, or even produces energy.
The Government has launched a tool that you can use to get an idea of what potential upgrades you can make to your home, the costs and potential savings.
Ideas include installation of cavity, roof and floor insulation. Also, installing a heat pump to replace a gas boiler, or solar panels to produce your own heating or energy.
It also includes ideas such as upgrading your windows to double glazing, installing smart thermostats to regulate your heating more efficiently or buying more energy-efficient home appliances.
While these are all good ways to make your home more energy efficient, the issue with many is that they’re either not practical depending on your property or require personal investment that won’t realise the financial benefit for some time.
Taking the aforementioned Government tool can give you an idea of the saving and costs of each idea.
Make changes to your behaviour
This is where behavioural changes come in and provide the possibility to save money immediately on your energy bills.
All the figures below are quoted by the Energy Saving Trust based on current energy price cap levels and average household by size and usage levels – so this is liable to change come October. But if anything, the cost savings could get better. Here are those tips:
- Ditch one bath a week for a shower – £12
- Reduce dishwasher usage by filling it completely – £14
- Turning off all lights in rooms you’re not using – £20
- Washing your clothes at 30 degrees and reducing your number of washes with larger loads (i.e., don’t put one jumper in and put a wash on) – £28
- Insulate your hot water cylinder if you have one – £35
- Fill the kettle to the level you need, not the top – £36
- Installing draft excluders or cushions on doors to prevent heat loss to rooms you’re not using frequently – £45
- Turn off the electronics in your house instead of leaving things like TVs on standby when you’re not using them – £55
- Dry clothes on a rack or in the garden, avoid the tumble dryer – £60
- Take shorter showers. The Energy Saving Trust says under four minutes is ideal – £70
While all these behavioural tweaks save fairly small amounts individually, taken together you’re looking at around £375 a year less on your bills. Were the price cap to rise to £3,400, this would be a saving of around 11% – no small amount.
While in the context of long-term wealth growth this might seem like small fry, the truth is cutting day-to-day living costs is one of the most effective ways to save more for the long term.
Amazon Prime hikes prices – time to review your bills
Amazon has announced it is hiking the cost of its Prime streaming and one-day delivery services.
With the cost-of-living rising, it’s time to review your non-essential bills. It happens to even the most prudent of us, especially thanks to the pandemic.
Stuck at home, we signed up for a range of new services including streaming, food delivery and other non-essential products.
But as we leave the pandemic behind and life returns to a ‘new’ normal, the cost of living is soaring, with inflation currently 10.1% on the consumer prices index (CPI) measure.
Unfortunately, no household is immune, and even longstanding services such as Amazon Prime – which has not increased prices in eight years – are not saved from hikes.
Amazon Prime is increasing its cost from £7.99 to £8.99 per month, or if you pay annually, £75 to £95. While this is not a massive increase individually, replicated across a range of services you could find your bills going up hundreds each year (not including energy, which is facing a major crisis and we handle separately in this blog.
How do I save on my bills?
The first thing to do if you feel you’re spending too much on your bills is to do a full audit of how much you’re paying for each item – looking at the monthly and annual costs.
In many cases, for products such as insurance, or even Amazon Prime, paying annually will save you money, so if you’ve got the financial resources to do that, it can be a good idea.
Once you’ve got a sense of what is going out, look at when your contracts expire. For phone, broadband and mobile bills you should never be paying more than the best deal on the market, if you’re out of contract.
Providers should alert you these days when your contract is expiring but be vigilant and shop around for better deals using price comparison sites. Mobile phones in particular can leave a costly bill in place that is unnecessary. While some providers such as O2 will lower your bill once you’ve paid for your handset, others will let it run at the same rate, which you’re not compelled to pay.
Next it’s essential to ask yourself – do I really need this? A common problem where costs proliferate in this area is streaming services. With such a wide variety available it’s tempting to have them all, but this could set you back hundreds a year. Ask yourself if you really need them all, or maybe cut back to your favourite. There are even free options available such as All4, which provides hundreds of TV boxsets totally for free.
Likewise, this is an issue when it comes to services such as Sky TV. The contracts tend to be very expensive, with price increases baked into the contract. There are cheaper alternatives such as streaming via NOWTV – which is just the digital equivalent of the same service. Separating out your telecoms bundle into separate broadband and TV services could lead to significant savings.
When it comes to other fixed cost bills such as water, council tax and TV licence, unfortunately these might not be possible to avoid or minimise. But there are a few tweaks you can make.
If you don’t watch live TV, or use BBC catch up services such as iPlayer, you don’t have to pay a TV Licence, for instance. Anyone living alone is eligible for a 25% council tax discount, while ensuring your property is in the right band can also save considerable sums. Altering your council tax band can be risky however as your local council might decide you should be in a higher band.
It is however worth researching whether your property is in the right banding. In the early 90s councils conducted so-called ‘second gear valuations’ where they would drive through neighbourhoods making valuations on the fly, leading to some very distorted bandings. It is worth looking into, Money Saving Expert has a more detailed guide if you wish to learn more.
Inheritance tax interest costs soaring for bereaved families
A little-known process for paying inheritance tax is sending payments soaring for bereaved families thanks to the Bank of England.
The issue arises where a family has an inheritance tax (IHT) liability to pay after losing a loved one.
The Government, to give families the ability to pay the liability without being forced to sell the assets such as home, offers payment by instalment.
But there is a little-known caveat to this which is sending payments soaring for many.
Interest rate hikes from the Bank of England are hiking these IHT payments. Families are obliged to pay an interest rate of the Bank of England base rate plus 2.5%.
This means the rate of interest on the instalments is currently 4.25% – higher than some of the best loan rates on the market.
How do IHT instalments work?
When inheriting assets from a loved one, the Government allows bereaved families to pay the IHT due on the value of their home over 10 years in annual instalments.
If you sell the house, you have to pay the liability in full straight away. The first instalment is due within six months at the end of the month in which the death occurs.
For shares and other securities, families can pay the IHT liability in instalments if the person who has passed away controlled more than 50% of the company.
How to minimise IHT costs
HMRC has seen a year-on-year increase in the number of estates paying IHT. This is because while asset prices have grown steadily over time, the Government has frozen the thresholds for paying the tax.
This means families become subject to liabilities, purely because the value of their assets are increasing to a point over the threshold.
Fortunately, there are good wealth planning solutions to mitigate the costs of IHT with regards to property.
A single person has no IHT liabilities on the first £325,000 of their assets. With the addition of the residence nil rate band this rises to £500,000 if the asset in question is your main home. The extra £175,000 is only available if the house (or its value) is being left to a direct descendant, (Children, Grandchildren, Adopted Children). So, if leaving to trust or to a sibling or nephew for example, it isn’t available. For a married couple this allowance effectively doubles to £1 million-worth of property if it is your main home.
However, once an estate reaches £2 million in value, the home allowance is removed by £1 for every £2 above the threshold. This effectively removes the allowance once an estate is worth over £2.3 million.
There are other strategies to help minimise the bill, including the way you structure assets, where you invest your wealth, and how you gift it away.
If you would like to discuss the themes in this article or would like more information on anything relating to inheritance tax, don’t hesitate to get in touch.
The World In A Week - Narrowing the gap
Written by Millan Chauhan.
Last week, the Bank of England (BoE) announced it had raised interest rates by 0.50%, the biggest increase in 27 years. UK interest rates now sit at 1.75% which is still way below the current inflation rate of 8.2%. The BoE has only increased rates in increments of 0.25% thus far since the pandemic, but has now opted for a more aggressive stance following similar moves by both the European Central Bank and the US Federal Reserve. Previous forecasts made by the BoE stated it could expect inflation to reach 11%. However, it has since revised this figure to 13%, as the cost of energy is expected to increase in the autumn. The effect of higher interest rates will increase the cost of borrowing and in theory encourage a consumer behaviour shift from higher spending to higher savings. This would then slow down the demand for goods and services and alleviate the pricing pressures we have seen over the last 12 months.
The BoE also released guidance on its economic forecasts which signalled that the UK would fall into a recession later in 2022 as shrinking demand begins to be priced into the economic data. It also stated the severity of the recession may be longer than its initial forecast.
Elsewhere, we saw the US unexpectedly add 528,000 jobs to the labour market as their unemployment rate fell to 3.5%. Treasury yields rallied strongly following the release of the economic data, in particular the 2-year Treasury which is often regarded as a proxy for interest rate expectations.
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 8th August 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Following the leader
Written by Shane Balkham.
The tightening of monetary conditions continued last week with the Federal Reserve hiking rates by 0.75%, repeating the size of the hike that was made last month. The Fed has raised rates by 2% over the past three meetings, intensifying the efforts to combat inflation and recover some level of credibility. However, during the press conference Fed Chair Jerome Powell alluded to a slowing in the pace of tightening at future meetings, to allow for an assessment on the effect that the rate hikes are having on the US economy. Powell confirmed that future decisions will be wholly data dependent and made on a meeting-by-meeting basis.
This adds pressure to the Bank of England to follow the lead set by the Federal Reserve last week and the European Central Bank the week before. The Monetary Policy Committee has been consistent in raising interest rates by 0.25% for each meeting since December 2021 and has acknowledged that it may need to act more forcefully in response to what they see as persistent inflationary pressures.
Governor Andrew Bailey has made it clear that a hike of 0.5% is one of many options currently on the table for discussion on Thursday. Not only does the Committee have to consider a slowing UK economy, but they also need to be cognisant of political promises being made in the Conservative leadership race. Pledges of tax-cuts could lead to interest rates being hiked further.
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 1st August 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Earnings Call
Written by Millan Chauhan.
Last week kickstarted another earnings season in the US as companies disclose their financial performance over the last quarter. The big banks were the first set of companies to report and should provide insight into the strength of the economy. JP Morgan saw a 28% fall in net income as investment banking and IPO revenues dried up. Earnings expectations have been strong thus far despite having faced soaring inflation, restricted supply chains and dampening consumer sentiment surveys. However, there is a diminishing outlook for earnings upgrades as we haven’t seen reports on earnings be truly impacted by the challenging macroeconomic climate.
US inflation data saw a further increase as Consumer Price Index (CPI) reached 9.1% with gas prices up 11.2% during the month of June. Elsewhere, America’s five-year inflation expectations declined to 2.8%, its lowest level over the last year which has prompted the Federal Reserve to raise rates less aggressively with a 0.75% increase expected at the Fed’s meeting next week.
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 18th July 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - A nation in mourning
Written by Shane Balkham.
While we welcomed in the new prime minister, Liz Truss, last week was dominated by the sad news that her majesty Queen Elizabeth II had passed away. It is indeed a sombre occasion and one that will be marked by ten days of official mourning.
It does present challenges for the new prime minister, as from 9th September all parliamentary business is suspended until after the official mourning period has finished. It has been suggested that the official day for parliament to recommence would be 22nd September, however there was a planned recess from that day until 17th October, to allow for political party conferences to be held.
Arguably, the most challenging item to resolve during the mourning period is Liz Truss’s £150 billion energy support package. It is fully expected that the energy price guarantee will be in place for 1st October, however legislation will be needed to extend that support to Northern Ireland.
The Bank of England has also announced the delay of their September Monetary Policy Committee (MPC) until after the official funeral. The MPC will now meet on 22nd September, which is a critical date, putting it after what is widely expected to be an emergency budget announcement on 21st September. That said, it is still unclear how parliamentary business will proceed throughout the period of mourning.
Having a reign that lasted 70 years and 214 days does allow for some interesting reflections; according to a Bloomberg columnist, the British stock market multiplied more than 2,500-fold during the Queen’s reign. It reminds us that long-term decision making is a powerful tool and something we can all adopt for our investments.
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 12th September 2022.
© 2022 YOU Asset Management. All rights reserved.