Dear clients,
November has come and gone and it is nearly two weeks since Jeremy Hunt delivered his budget.
There have been pages and pages of analysis in every publication; I attach the Hillier Hopkins Update, which I trust is of interest.
The markets, thankfully, barely reacted, which means, very generally, that the Chancellor delivered what they expected. The actions to fill what is now commonly known as ‘the black hole’ have been started – the tax increases announced were as expected and the spending cuts, which will be severe, have been postponed until after the next election.
The tax increases achieved by holding allowances at their current levels (i.e. ignoring inflation) are real but politically tolerable since tax rates do not appear to have risen (except for high earners). Measures that will affect our clients include the changes to car tax for electric vehicles and the postponement (again) of reforms to social care funding. It is just as well that all the commentary that has been distributed confirms that this was Jeremy Hunt’s budget because the actions put forward seem remarkably similar to the proposals from the Labour Party – increased taxes, increased benefits and so on.
Thankfully, UK politics has come off the front pages of US and European newspapers. Markets are predicting a peak in interest rates and inflation in 2023, but markets sometimes get things wrong, and politicians are never quiet for long.
As far as investment portfolios are concerned, asset diversification has not worked this year in that nearly all asset classes have fallen in value. We cannot lay all the blame for this at the doors of Number 11. Jeremy Hunt faces huge challenges. While other economies are also suffering with the consequences of the dreadful war in Ukraine, they are not all suffering with the challenges of Brexit.
It is clear that, for the foreseeable future, the UK is going to suffer higher taxes than we have been used to, regardless of which party is in power. The depth and length of the recession are hard to predict, but it is likely that the effects will be very uneven. All is not doom and gloom – a segment of the population still has savings from the Covid years, and many companies are still profitable and paying dividends. Finally, even bonds have attractions – short-dated high-quality bonds are now yielding nearly 4%.
We wish you all a pleasant and healthy festive season. If you would like to discuss any aspect of your finances, do not hesitate to contact us.
Ben