Investment Market and Mini Budget Update: September 2022

Wow, isn’t there a lot going on in the world right now?

We hope that this newsletter helps to simplify some of the recent announcements whilst also providing some peace of mind in an ever-changing world.

The Markets

If you have been logging on to see the value of your investments or pensions, you may have been delighted to see a nice uplift in most funds from June through to the middle of August. Sadly, that summer bloom didn’t last very long and so far, September has seen a lot of volatility taking markets back down to June levels.

There are some sectors and geographies that have done better than others, but the majority of the markets have seen a decline so far in 2022, including the usual safe haven of fixed interest government and corporate bonds. So, what is causing this?

Well, it started at the beginning of 2022 with the war in Ukraine. Gas supplies being cut off raised inflation almost overnight and in an attempt to stifle inflation, governments raised interest rates. This rise has then caused bond yields to fall. On top of this, markets dislike any uncertainty, especially around conflict and inflation, and therefore as always, they have priced in a worst-case scenario.

What should you be doing? The best advice for you, with money we manage, is to stick to your own financial plan and unless you need the money, stay invested. If you have been invested for more than two years you might remember this exact advice during the Covid-19 pandemic. You might feel it is the best course of action to remove yourself from the market or withdraw some money, but this is the worse thing you can do, as this will crystalise any losses and you will have no way of recouping them without being in the market when it rebounds. When will that be you might ask? That is the million-dollar question and even the most experienced fund manager or economist cannot tell you this for certain. During March 2020 the media predicted it would take 10 years for the markets to recover, those of you who were invested during that time will remember it had recovered by around September 2020. The current situation could be long and drawn out or it could recover quickly, but whichever it is, you need to stick to the plan to make sure you are invested prior to recovery and no one can tell you when that date will be.

What are we doing about this? As your advisers we constantly monitor the market, using state-of-the-art technology combined with internal and external investment expertise to create the most appropriate investment solutions for clients. We have already been in touch with some clients to make slight changes to  portfolios but in most cases, the portfolios that our clients are invested in have performed well in line with the markets. That does not mean they have been immune to the ups and downs, far from it, but they have performed in line with our expectations when we compare with the wider market and, they are incredibly well positioned for when the markets recover, which you will see if you look at the figures between June and August. These little pockets of growth we are seeing are a very positive sign. The markets are not in freefall as they were during March 2020, rather they are up and down. A recession isn’t the biggest risk to portfolios, some sectors actually perform well in a recession, however high inflation is a risk and an overall risk to your financial plan. Long-term high inflation means you will need to take more from your investments and pensions to cover the increasing cost of living, so this needs to be discussed at your financial planning meeting with your adviser. If you do not pay for full financial planning and would like to benefit from that, speak to your adviser to find out the cost of upgrading to receive a full cashflow plan, taking higher inflation into consideration. The good news is inflation does seem to be coming down, albeit very slowly. The government will do everything they can to bring inflation down. Although we are feeling the pinch with our shopping and other bills increasing (who knew cheese and butter would become luxury items!) the government will be feeling the squeeze much more. Remember they have a lot of inflation proofed costs such as:

  • State benefits and pensions
  • NHS, Police, armed forces pensions
  • Local authority and MP’s pensions

These are already a significant cost to the government and long-term high inflation would have a huge impact so they are  incentivised to bring inflation down as quickly as possible.

In summary, our advice is to stay calm and stay invested. See the positives in the little uplifts we see from time to time and don’t worry too much when it goes the other way. Stay away from sensationalised headlines and read our monthly newsletters.

More importantly, know that we are here if you are worried- only ever a call or e-mail away and, in a few minutes should be able to answer your questions and give you the peace of mind you need.

Let’s hope the rest of 2022 is more positive but also let’s remember the winter of 2020 when we were just about to head into another lockdown. Things are so much better than they were.

If you do need to talk anything through, please get in touch.

The Mini Budget

Kwasi Kwarteng set out the three priorities of the government’s Growth Plan:

  • Maintaining responsible public finances
  • Reforming the supply side of the economy
  • Cutting taxes to boost growth.

There were other measures introduced recently that might help you whilst also hopefully helping to combat rising inflation:

1. Energy: The government has already announced that the average household’s energy bills will be capped at £2,500 a year for two years. This is in addition to a £400 contribution towards bills this winter.

The government website contains more details about the scheme, along with some examples of potential cost savings.

2. Interest Rates: Interest rates rose for the seventh consecutive time. To combat soaring inflation, the Bank of England has increased the base interest rate by 0.5%, up to 2.25%.

The decision by the Bank’s Monetary Policy Committee (MPC) takes rates to the highest level since 2008. Those of you with mortgages before this will remember interest rates as high as 14%, so although these rates are ‘higher’’ than they have been for some time, they are still historically low. You might say those with mortgages have been spoilt for the last 10 to 15 years as they have been so low.

The BBC reports that borrowers on a typical tracker mortgage will have to pay about £49 more a month, while those on standard variable rate (SVR) mortgages will see an increase of around £31 per month. Those on fixed rates will not be affected until their fixed rates come to an end and then might see significant rises. We recommend refreshing your budget planner to see how your finances sit at the moment and make adjustments accordingly.

3. Corporation Tax rise will not go ahead: The chancellor announced that a planned move to raise Corporation Tax from 19% to 25% in April 2023 will be cancelled. This will impact you if you own a business.

4. 1% cut in Income Tax brought forward to 2023: From April 2023, the basic rate of Income Tax will be cut from 20% to 19%.

5. Abolition of additional-rate Income Tax and reversal of National Insurance Increase: One of the surprise measures of this mini-Budget was the abolition of the 45% additional rate of Income Tax from April 2023.

This will only apply to you if you earn over £150,000 per year.

6. Care Levy scrapped: The Health and Social Care Levy, which was to replace the 1.25 percentage point rise in April 2023, has also been scrapped. The change will take effect on 6 November 2022.

The government states that this will reduce tax for 920,000 businesses by nearly £10,000 on average next year as they will no longer pay the higher level of employer National Insurance contributions.

7. Dividend Tax rise reversed: As well as reversing the National Insurance increase, the government will also reverse the 1.25 percentage point increase in Dividend Tax rates applying UK-wide from 6 April 2023.

The ordinary and upper rates of Dividend Tax will be reduced back to 2021/22 levels of 7.5% and 32.5% respectively.

Due to the abolition of the additional rate of Income Tax, dividend income that was previously charged at the additional rate will now be charged at the upper rate of 32.5%.

The reversal of the dividend tax rise will benefit 2.6 million taxpayers with an average benefit of £345 in 2023/24, whilst additional-rate payers will further benefit from the abolition of the additional rate of Dividend Tax.

8. A cut in Stamp Duty: The government believes that cutting Stamp Duty will encourage economic growth by allowing more people to move and will enable first-time buyers to get on the property ladder.

So, the chancellor announced that, with immediate effect, no Stamp Duty will apply to the first £250,000 of a residential property purchase. This will save a second-time buyer £2,500 when they buy a house valued at more than £250,000.

The chancellor also increased the threshold at which first-time buyers will start paying Stamp Duty to £425,000 and increased the value on which they can claim relief from £500,000 to £625,000. Very good for anyone wanting to move home.

Are you still awake? It was quite a boring budget sadly but at least taxes were not increased.

Get in touch

If you have any questions about how the mini-Budget will affect you and your finances, please get in touch.

All information is from the Growth Plan 2022 document.

The content of this “mini-Budget” summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken because of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.