Issue 29
Dear All,
As we enter the third quarter of 2023 many things have changed globally, not least in the UK. We have been through a short-term disaster budget in October 2022 which saw gilt and corporate bond prices collapse then followed by successive interest rate rises to further compound misery on the asset class. Their fortunes should turn around once we begin to see interest rates reverse which is fully expected by the end of this year. The reopening of the Chinese economy has had a positive effect on markets since January which was the primary reason for the initial market rally, however this went into reverse in March with global markets falling back. Chinas global services PMI (purchasing managers index) rose to 57.8 in March from 55 in February the third consecutive month of growth following the lifting of restrictions. Interestingly a figure over 50 indicates expansion. The manufacturing PMI index fell from February to 51.9 from 52.6. February’s figure indicted the fastest rate of growth in a decade. The non-manufacturing PMI grew in March, boosted by a recovery in the services sector. This is good news for global markets because China has a pivotal role in global trade and allowing inflation to fall back to more acceptable rates.
The UK is suffering the Brexit hangover with the lack of foreign investment having an impact on our economy. There have been labour issues and of course legislation complications, frankly the list is endless, but it appears the predictions are the UK economy will fair worst certainly out of the EU countries which appear to be more down to Brexit than covid. UK house construction output fell in February although it is still at 50.7, civil engineering was the fastest growing segment due to the contentious HS2 project. House building was the weakest performing segment at 44.2 the fastest rate of decline since May 2020 due to the rise in borrowing costs. House prices also fell in the EU by 1.5% quarter on quarter, the first decrease since 2015. The largest declines were seen in Germany and Denmark where prices dropped 5% and 6.5% respectively. A sign of the impact of global inflation and rising interest rates. UK retail sales improved in March boosted by Mother’s Day spending and spending on furniture and home comforts as people cut back on eating out in favour of entertaining at home. There may be a boost in May from the coronation, but overall discretionary spending is expected to reduce due to the increased cost of living.
Having not yet even mentioned the terrible situation in Ukraine it of course has had an impact on global costs, particularly energy. Whilst this has settled over the last quarter since the new year, the cost of electricity and gas has had an impact on household expenditure and budgeting. The UK, EU and USA have all made adjustments to sources of energy, which has eased the short-term pressure and indeed cut out Russia in the short, medium and long term. The push for renewables is even more important now and we hope that Shell and BP lead the way in research and development. Solar/PV energy should become mandatory on new developments and certainly on commercial projects. We must save the planet, the COP conferences (conference of the parties) are so important we have included a summary on these below just for nice to know purposes.
Overall, the world has and still faces head winds as we enter spring, however there are positive signs and a recovery must and will happen, it is a question of when this happens. The FTSE 100 has been positive since Christmas however this has been fuelled by Oil, mining, health and financial stocks whereas the FTSE 250 and small companies indices have not really shown any movement as yet, and this is the area where most funds are concentrated in the UK. Portfolios are of course invested globally so returns are also reliant on the US market in particular, with Europe, Asia and Emerging markets all playing important roles. As mentioned earlier Asia and emerging markets have had a good start to 2023 which is overdue and will hopefully continue.
We are hopeful 2023 will be a better year overall ending with interest rates going into reverse and hopefully an end to the awful Ukraine war.
Best Wishes
Mark & Team
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Budget 2023
The Spring Budget delivered by the Chancellor Jeremy Hunt on Wednesday 15 March.
After presenting a Budget-in-all-but name with the Autumn Statement, the Spring Budget was delivered against the backdrop of a day of widespread industrial action. The run-up to the event appeared deliberately downplayed, save for a late flurry of leaks highlighting a focus on childcare at one end of the scale and pensions at the other. While acknowledging the Prime Minister’s two objectives of halving inflation and reducing debt, Mr Hunt focused his Spring Budget on the Prime Minister’s third objective – getting the economy going.
In a wide-ranging and longer than usual speech, there were some key headline items:
The inflation rate is forecast by the Office for Budget Responsibility to fall from 10.1% (January 2023) to just 2.9% by the end of 2023.
The lifetime allowance for pensions will be abolished from April 2024, with the lifetime allowance charge withdrawn from April 2023.
A new monetary limit for the tax-free pension commencement lump sum will be introduced for 2023/24 of £268,275 (equivalent to 25% of the current standard lifetime allowance).
The annual allowance for pensions will increase by 50% to £60,000 from 2023/24 and the money purchase annual allowance will rise from £4,000 to £10,000 from 2023/24.
Companies investing in new plant and machinery in the three years from 1 April 2023 can claim a first-year allowance of up to 100% of expenditure.
Small and medium-sized enterprises that spend 40% or more of their total expenditure on research and development can claim a tax credit worth £27 for every £100 they spend from April 2023.
The energy price guarantee is maintained at the current £2,500 level until the end of June 2023.
Up to 30 hours of free childcare per week will be available to working parents of children from the age of nine months by September 2025. Initially, from April 2024, working parents of two-year-olds will be able to access 15 hours of free childcare per week.
The scheduled 11p a litre duty increases in petrol and diesel will not go ahead.
As ever the Budget documentation contained a wealth of detail and much to digest, our Budget Summary highlights the key aspects likely to affect you. If you have any questions about what you should do next, please get in touch.
Source: Taxbriefs.com
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What do you need to know?
Geopolitical tensions, barriers to international investment and the reconfiguration of supply chains could lead to a long-term reduction of global GDP of around 2%, the International Monetary Fund (IMF) has warned. In its World Economic Outlook, the IMF said Brexit, US/China trade tensions and the Ukraine war could lead to a reversal of global economic integration, a process it calls “geoeconomic fragmentation”. It said that although the redirection of supply chains to preferred trade partners - friendshoring – could strengthen domestic security and help maintain a technological advantage, it may also make countries more vulnerable to macroeconomic shocks. The loss of foreign direct investment could be especially severe for some developing economies, it said.
Around the world
Figure in focus
Words of wisdom
What’s coming up
Performance year-to-date
3.98% FTSE 100
3.17% FTSE All Share
3.82% MSCI World NR
7.12% MSCI Europe NR
$1.25 GBP/USD
3.51% GBP/USD % Move
€1.14 GBP/EUR
1.25% GBP/EUR % Move
Performance to 05/04/2023, in GBP. Source: Factset, AXA IM. All of the index data is based on a total return basis.
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We cannot be held responsible for the accuracy of the information contained herein. This newsletter is designed to provide information on topical events which have an impact on financial services. You should seek advice before taking any action relating to the content of this document. This letter is not a recommendation to invest.
Padstone Financial Management Ltd
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