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Investment market update: March 2021

During March there were reasons to be optimistic. In fact, the Organisation for Economic Co-operation and Development (OECD) raised global growth forecasts following Covid-19 vaccination and stimulus package news around the world. It’s now expected the global economy will expand 5.6% this year.

Despite the pandemic dominating headlines, a survey from the Bank of America suggests Covid-19 is no longer the biggest risk worrying investors. Instead, their focus is on inflation. With low-interest rates set to continue, in order to support countries’ economies, interest rates could play a significant role in wealth management over the coming years.

UK

The big news in the UK this month was the Budget. Chancellor Rishi Sunak unveiled a range of measures to support economic recovery following Covid-19 and to pay back the money borrowed over the last year.

For individuals, the Budget means freezes on many taxes and allowances, such as the Capital Gains Tax annual exemption and pension Lifetime Allowance. While the freezes mean taxes won’t rise immediately, they will have an impact in real terms over the next five years. From a business perspective, Corporation Tax will rise from the current 19% to 25% in 2023 for the largest companies.

The Budget also included support for aspiring homeowners, with the government revealing plans to back 95% mortgages. This led to a boost for homebuilders, with Persimmon and Taylor Wimpey seeing stock prices rise by 6% and 5.7%, respectively, when the news was leaked to the press.

While introducing the Budget, the chancellor was optimistic about growth forecasts and returning to “normal” over the coming months. This sentiment was echoed by Bank of England governor Andrew Bailey, who said there was a “growing sense” of economic optimism.

Consumers are becoming more confident about the future too. According to an Ipsos MORI survey, 43% of Britons think the economy will improve over the next 12 months, an increase of 14% from February.

Data that tracks economic growth suggests there are good reasons for this optimism.

According to IHS Markit, factory output is slowing but the manufacturing Purchasing Managers’ Index (PMI), which tracks new orders, input costs, and employment, has increased. This could signal a growth in demand. The services sector is also nearing growth. In a measure where readings above 50 indicate growth, it scored 49.5 in February. While still in contraction territory, it’s a sharp rise from the 39.5 recorded just a month earlier.

As retail and hospitality firms open for business, news from the high street highlights the challenging circumstances firms are operating in:

  • High street favourite John Lewis revealed losses of £517 million in 2020, its first-ever full-year loss. Alongside the announcement, the department store said it would be permanently closing an additional eight stores, placing 1,500 jobs at risk.
  • Chocolatier Thorntons announced plans to permanently close all of its stores nationwide. The firm will continue to operate an online store.
  • Bakery Greggs posted its first annual loss since floating on the London stock market in 1984. Like-for-like sales were down 36% in 2020, resulting in a pre-tax loss of £13.7 million. This compares to a pre-tax profit of £108 million in 2019.

As well as Covid-19, Brexit continues to present challenges for businesses on both sides of the English Channel. Exports to the EU from the UK fell by 40% (worth £5.6 billion) in January. This represents the biggest monthly decline in British trade for more than 20 years. Imports from the EU also fell 28.2%, representing £6.6 billion worth of trade.

Europe

According to the service sector PMI, the eurozone could be on track for a double-dip recession. Activity and new orders fell in February, with a reading of 45.7 indicating a contracting sector. However, factory growth, with a PMI reading of 57.9, could help balance this out.

Lockdowns and social distancing restrictions haven’t harmed all businesses; Danish toymaker Lego, for example, has benefited from more families playing together, with consumer sales increasing by 21% in 2020.

USA

There was good news for some businesses affected by the trade war between the US and Europe, including Scottish whiskey firms. The US and UK agreed to a temporary four-month suspension of the tariffs resulting from an ongoing dispute between the US and Europe over government aid to support Boeing and Airbus. It’s hoped the agreement signals that a quick post-Brexit trade deal can be reached.

Asia

China’s banking regulator issued a stark warning for investors, saying a bubble was building abroad. Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, said: “I’m worried the bubble problem in foreign financial markets will one day pop.”

He added that gains in the US and European markets, enabled by loose monetary policy, have “seriously diverged” from reality. He went on to say there was a bubble in China’s property market too, adding it was “very dangerous” for people to buy homes for investment or speculative purposes.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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