Barnes & Sherwood Professional Advisers Ltd

Economic Update – Some Key Dates

Monday’s report from Citi Group predicting inflation peaking at 18.6% in January 2023 has further ratcheted up concern about the increasing cost of living.

With calls for an ‘emergency Budget’ across the political divide, and as yet unfunded promises from both Conservative candidates for the party leadership, it is likely that we will see a financial statement of some kind from the incoming government as soon as mid-September.

There are some key dates to bear in mind:
• On 26 August OFGEN will announce the next energy price cap, predicted to jump to around £3,550 from 1 October.
• On 5 September the Conservatives will announce the outcome of their leadership election as Parliament returns from the summer recess.
• 21 September could see an ‘emergency Budget’ or ‘fiscal event’ according to press reports.
• Parliament will rise from 23 September to 16 October for the party conferences.
• On 1 October the new energy price cap comes into effect.

Whether we will see a full Autumn Budget including the 2023/24 tax rates or a simpler emergency Statement remains to be seen.

We are keeping a close eye on developments and will be offering a summary of any financial statements delivered by the new Chancellor as they happen.

If you would be interested in receiving a summary of whatever emergency measures are announced in the coming weeks, simply let us know.

Stewart

A Change in Direction ...

The competition for the next UK prime minister is down to the final two, who are set to fight hard to push their contrasting agendas of sticking to the current taxation strategy vs the more familiar Conservative position of lowering taxes, including rescinding the national insurance percentage point rise. How practically viable that is remains to be seen.

We will have to wait until September to find out the outcome for the country, but following the recent record-breaking scorching temperatures across much of the UK, they may also be considering how to prioritise the climate change agenda and an obvious target area is housing.

However, the government’s proposal to require all properties new to the rental market to have a minimum EPC rating of C has been dropped, but other legislation affecting landlords is pushing ahead. Ground rent has been effectively scrapped for all new leasehold properties from July 2022; welcome news for new buyers, but the cap could make sales of older properties much more difficult.

We have written a lot about the difficult decisions facing those nearing retirement in recent months, but in these times of high inflation a promise to uphold the triple lock made by Rishi Sunak in May should mean that the State pension should receive an inflation-matched increase next year. The buying power of the maximum state pension fund has also increased.

With the fallout from the pandemic and higher living costs leading many to re-evaluate their retirement plans, taking targeted advice is more important than ever.

For those relying on investments to boost their income, taking a long view rather than reacting to short term fluctuations is generally the better option.

The latest update to our Key Guides on our website will include recent developments in key financial planning areas, including the effects of rising inflation and the Bank of England base rate rises.

If any questions arise, please get in touch.

Stewart

Catching up on your state pension
The deadline to backfill your pre-2016/17 state pension contributions is nearing.
When the new state pension was introduced in April 2016, the government offered a temporary opportunity for some of those who did not have a full record of national insurance contributions (NICs) record to make up for their shortfall, even if they had already reached State pension age.
It has always been possible to ‘backfill’ NICs for the six immediately previous tax years, but the government’s concession permits missed contributions (full or partial years) to be made for the ten tax years from 2006/07 to 2015/16. A decade can make a big difference. For example, the current state pension is £185.15 a week, which requires a NICs contribution record of 35 years. If your contribution record is just 25 years, then the pension drops to £132.25.
For each whole tax year, the cost of backfilling is generally:
• £824.20 in Class 3 NICs if you were employed; or
• £163.80 in Class 2 NICs if you were self-employed.
The figures reduce proportionally if you have paid NICs for part of a tax year.
Viewed another way, if you were an employee, £824.20 could buy about £275 a year of inflation-proofed pension (with a likely 9–10% increase next April). That means the outlay would be covered in less than three years, before tax is considered. However, not everyone will see the same benefit from paying missed NICs.
For example, for periods before 2016/17, it is possible that long-serving members of defined benefit (final salary) schemes will see no gain. The reason for that is the arcane transitional rules that converted pre-2016/17 state pension entitlements to benefits under the new regime. People likely to be on benefits in retirement can also see little or no advantage because some or all their extra pension may be clawed back in reduced pension credit or housing benefit.
The opportunity to backfill pre-2016/17 contributions ends on 5 April 2023. If you think you could benefit, it pays to start investigating now, as there can be discrepancies in NIC records that need sorting out before any action is taken.
The Financial Conduct Authority does not regulate tax or benefit advice.

FOR CLIENTS OF BARNS & SHERWOOD:
Winter is coming .... Ok, though I'm not a Games of Thrones fan, I have heard this line before. In case you are wondering, the UK economy and the UK sharemarket (Red Line below) is not very representative of the performance of your portfolio (Blue Line below). It looks a lot more like global shares (Green Line below). So if you are worried about the news, it will have a very limited impact on your portfolio with us .... Stewart

FOR CLIENTS OF BARNES & SHERWOOD:
The Prime Minister Boris Johnson will make a televised broadcast today on new restrictions to control the pandemic. These are expected to see U.K. bars and restaurants close earlier. More to come.

Global shares are volatile moving with the news on virus concerns and progress towards further monetary stimulus.

Oil fell due to worries further lockdowns will weaken demand and a warning from the Fed's Jerome Powell that the U.S. economy has a long way to go before it recovers. European Central Bank chief Christine Lagarde said that while Europe will see a rebound in the third quarter, the bank is ready to add stimulus given the recovery is "uneven and incomplete."

While we are seeing markets respond to these and other virus-related news stories the moves are more within a restricted range than steep falls.

FOR CLIENTS OF BARNES & SHERWOOD: the year to date graph shows government bonds have held steady and after the sharp bounce off the bottom six months ago, shares are now making slower but steady progress. Despite the expectation of a second wave of infections and the equally expected wave of unemployment. The dark line is a Barnes & Sherwood balanced portfolio. A diversified portfolio smooths out the bumps.

The UK remains down due mostly to the energy and bank stocks listed on the index and lack of technology. We remain optimistic.

UPDATE: FOR CLIENTS OF BARNES & SHERWOOD - Markets, a very brief overview - Bond yields (interest rates on government and corporate bonds) are moving in a fairly narrow range meaning rates are expected to remain low for years to come. US shares (a key global share indicator) are holding around their 50-day moving average, despite the economic dislocation and worrying financial conditions. Those conditions, which Central Banks closely monitor are showing little sign of stress across key markets. That may not be what the daily news indicates, but that is what the numbers show.

The take-away message: though markets are showing volatility day by day, there is no major indication either the pandemic or the economy will send them into another sharp fall.

And some good news from the Bank of England

AT HOME: Market remain volatile …..
• The Bank of England hints negative rates are a real possibility causing the pound to stay low.
• One in ten employees are relying on wage subsidies but that’s down from over 30% during lockdown.
• And there's Brexit.

Difficult times provide new opportunities and success can happen when businesses put their customers first, improving the quality of life for everyone.

GLOBAL: The US Federal Reserve plans to hold interest rates at zero for longer allowing inflation to rise above its long-term 2% target, even with the economy at full employment and following years of steady expansion. That in effect, provides extra monetary stimulus.

14 July 2020 – Update for clients of Barnes & Sherwood: Sharemarket Returns Year to Date: U.K., U.S. and Asia.

The UK is in red, Asia in orange and US in blue, so far this year. Perhaps the performance of the UK economy has less impact on your portfolio than you may think, when you see positive returns on your money.

14 July 2020 – Update for clients of Barnes & Sherwood: Is the Sharemarket Too High Now?

There are bulls and bears for every share at every price. It’s an unwritten rule that comes from balancing supply and demand in the marketplace. Companies with a good balance sheet, solid recurring revenues, strong profitability and ability to grow under difficult conditions will always be in demand.

There will be those who say a particular share is “too expensive”. It’s a favourite topic among journalists jockeying for your attention. They seem perplexed when shares do well in troubled times. But I somehow doubt their ‘special knowledge’ is better than the combined judgement of the many millions buying and selling every day in the marketplace.

Concerns that any company’s shares – or just ‘shares’ in general – are “too expensive” never turn out to be very helpful when making investment decisions.

What’s often ignored is these “expensive” companies, going up in price (even during a global pandemic), are those with a strategic advantage. An example of this given by Nick Train, manager of your Lindsell Train UK Equity fund, about his holding in Remy Cointreau. Remy was up 14% last month with double digit gains over 2020. Sales of its prestige products have recovered and its brands will continue to generate healthy profits for decades to come.

Despite indications to the contrary, the world economy is recovering. Wealth is beginning to build again. Which is why there’s new demand for Remy’s products. When government bonds yield less than 1% (effectively a “P/E” ratio of over 100x), it’s no surprise competing assets with a long term future – good quality company shares – continue to be highly valued.

9 July 2020 – Update for clients of Barnes & Sherwood: The Chancellor has set out his response to Covid-19 in a £30 billion “Plan for Jobs” package with Stamp Duty slashed, VAT reduced and half price meals trying to slow unemployment and boost the housebuilding and hospitality industries.

According to HM Treasury’s Twitter account, each Monday to Wednesday in August, customers can enjoy up to £10 off meals and non-alcoholic drinks per person in eligible cafes, pubs and restaurants. https://t.co/Q13Sn02TwE

Airlines have been left out and suggestions are the green spending was lower than other European countries. Whether this works depends on avoiding a second wave of infections that could slow the economy reopening. But all countries, including the EU still see major challenges ahead and further stimulus will be needed.

US Tech Shares - Another fresh record for U.S. tech shares with the Nasdaq Composite closing at an all-time high Wednesday. The Nasdaq is up over 4% in July driven by Amazon.com Inc., Apple Inc. and Microsoft Corp. But just because these are booming does not mean every other index or market will do the same ….

HM Treasury on Twitter “Each Monday to Wednesday in August, customers can enjoy up to £10 off meals and non-alcoholic drinks per person in eligible cafes, pubs and restaurants. ”