Autumnal review?01 September 2021
Autumn seems to have arrived about a month early according to the weather, and the return to school beckons. For some, the first return to the office environment in over a year is calling, and with the end of the current government furlough scheme (along with the SEISS scheme for the self-employed) we hope that the current unemployment rate of 4.7% does not spike if employers decide to make some redundancies.
Some clients may be aware that historically, government borrowing costs are low but rising; however, some may argue that with 99.7% of Gross Domestic Product (GDP) now having been borrowed, and still climbing, interest costs are going to have to remain low to be affordable. Although this strategy is understandable to allow the government to cope with the pandemic crisis, this is the highest level of government borrowing since 1961. This will make the Chancellor's financial statement, usually expected around November each year, even more interesting as he not only balances the books, but also seeks to start the mechanisms to repay the debt. Speculation this year we believe will be significant but will only be clarified on the day, with some believing that a higher dose of inflation would at least help the government in reducing the effective real value of the debt. I have little doubt that the Chancellor will touch on the various tax allowances available to most during the course of the tax year, in this case 2021/2022, and if you have not used your allowances thus far, then a review may well be worthwhile.
Talking of inflation, many will also be aware that inflation is on the rise, with the Consumer Prices Index (CPI) reaching 2.5% in July 2021. The Bank of England's inflation target rate is 2.0%, and the Bank has made comment that it may, senior officials believe temporarily, see this rise to 3-4%, before heading back down. It will be noteworthy to see if this is temporary, as the Bank of England believes, noting that base rates (currently 0.1%, the lowest ever) can be used to control inflation rates if they remain stubborn. Recent fuel price rises, both for home and car, may well add to this upwardly mobile mix, seeing costs rising as we approach the end of 2021.
Most global equity markets have remained largely buoyant over the first half of 2021, with some volatility and profit-taking during the lower trading volume months of the summer. There are of course no guarantees as to the way markets, and associated factors such as currency volatility, will move, either down or up. However, we remain optimistic that the outlook remains favourable to the end of 2021 and beyond.
Overall, as you might anticipate, the financial markets remain as busy as normal and are likely to remain so during the autumn. Be mindful that costs are rising, in some areas significantly (building supplies as an example), and taxes might do the same if the Chancellor starts to try to take control of the debt that has been accumulated.
A regular review of household budgets is of course worthwhile to make sure that you are ready for the months ahead.
No individual advice is provided during the course of this blog.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner