Chapters Financial - Investment House View

July 2024

We have passed the longest day of the year, and the summer solstice which heralds that summer is really here, although based on the weather so far, you might not know it. We also have a new government, following the UK general election on 04 July. We have seen the election in France and there are many others to follow in the second half of this year, including in America. With Wimbledon and Euro 2024 over, eyes turn to France and Paris again for the summer games.

We have of course moved firmly into the new tax year, with various annual allowances restored, or indeed varied in some cases. In our experience, it certainly been a busy start to the 2024/2025 tax year, with many clients wanting to use up their allowances early. Perhaps the thought of the elections focused the mind.

As we have noted before on this webpage, many equity markets have been buoyant in the first half of 2024. Very welcome for most, although not a guarantee of future performance. To reference this, and as an example, the FTSE100 reached over 8,400 points on 22 May 2024. Also, the US Dow Jones index reached above 40,000 points in mid-May. This is of course not a guarantee of future performance.The UK Budget announcements made on 06 March by the Chancellor were rather flat in their overall effects. We thought the Budget was carefully crafted, but with little substantive cash available, it was rather lacking in allowing any 'rabbits out of the hat'. Indeed, the International Monetary Fund (IMF) had warned against too much generosity, and this seems to have been heeded. Trying to create some economic feel-good factors was still a priority; however, this was set against the news that the UK was in a technical recession in the last half of 2023. Indeed, December 2023 saw a 0.1% drop in GDP (Gross Domestic Product), and it will be interesting to see how the first six months of 2024 fare. The latest announcement from the Office for National Statistics (ONS) on 11 July confirms that GDP is estimated to have grown by 0.9% in the three months to May 2024, compared with the three months to February 2024. This is the strongest three-monthly growth since January 2022. Monthly real GDP is estimated to have grown by 0.4% in May 2024, after showing no growth in April 2024.

More detail on the substance of the Budget announcements, including another 2% National Insurance rate reduction can be found on our blog page here: budget blog 06 March 2024

We are of course expecting the new government's first Budget in due course, likely in the autumn, although yet to be confirmed.

Continuing in the month of July, one topic that remains high on many UK household agendas (and political agendas) is the cost-of-living issues that persist. One high-cost swaps itself for another: as examples, high energy costs have reduced to be replaced by high variable rate borrowing costs and residential rental prices, the latter of these being 28% higher than February 2020 according to estate agency Hamptons. Many are anticipating that UK house prices will reduce on average over the year ahead, although this is not guaranteed. To some extent, these points are just part of day-to-day living, however, 2024 is different because it is an election year, as we know from the current campaigning and these come into focus.

Mid-June saw the ONS confirm that the Consumer Prices Index (CPI) for May 2024 fell further to 2.0% from 2.3% the prior month, the target for many years. The CPI position of 2.0% was confirmed again in July by the ONS. The Bank of England target for UK inflation remains unchanged at 2.0%. It will be interesting to see if this is enough for a base rate cut at the next Monetary Policy Committee meeting on 01 August 2024.

As a note, US inflation fell faster than forecast, to 3% in June.

The Bank of England has maintained the current base interest rate of 5.25% (first achieved on 03 August 2023) throughout the autumn and again in June 2024. The US Federal Reserve has also held base rates, and many markets have been cheered by the current indicated view that the ceiling on central bank rates has been reached (of course not guaranteed). However, concerns remain about inflation, and this caused some jitters in the middle of April, as analysts' models were amended to see inflation (and subsequently bank base rates) fall further later in 2024.

Most are aware that mortgage rates have hiked, and savings rates have also trended upwards, although not at the same pace, much to the frustration of savers and regulators (The Financial Conduct Authority / FCA).

It should be noted that the rise in the Bank of England base rate is good news for savers, and some savings accounts are even offering 4.5% - 5.0% pa gross plus. Look out for AER rates (Annual Earnings Rates) which show the real rate of interest being provided. Of course, higher interest rates are not so good for variable rate borrowers, and the days of cheap borrowing for individuals and nations are over, certainly in the shorter term.

As you might anticipate, many financial thoughts will be UK focused; however, the world is now a small place and many of these economic factors are occurring globally, as we enter a new era of higher costs, inflation, interest rates and the like. Global conflicts remain constants at this time.

We have looked at some of these points below.

GBP / US dollar

Many readers will know that exchange rates can vary for many economic reasons. For some, it may only become apparent when purchasing foreign currency for a holiday or visit abroad. The current indicated exchange rate is $1.29 at the time of writing (19 July 2024).

UK Net Public Sector Gross Domestic Debt v GDP

It is noteworthy that net public sector debt has consistently run over the last year (2023/2024) at approximately 95%-100% of UK monthly GDP (gross domestic product) (source: ONS). 2024 has continued in a similar way with the statistics through to June2024 showing the provisional estimate being 99.5%, and some will not want to see this level (and its associated interest costs) rise.

Markets factor in most things

Turning to the current market position, many individuals may refer to the value of their pension or ISA arrangements as a reference point to how markets are moving. We all know that the value of funds can fall as well as rise, and we have seen some volatility this year, although alongside positive returns from some global equity markets. Volatility is not uncommon, and this can be triggered by global economic events, or their continued effects.

The key point here is that if we think something is happening (such as the ongoing cost-of-living issues), the markets have usually factored in the effects. Looking at the markets on 11 July 2024, in comparison to a year ago, we find the following (approximate):

Market values can fall as well as rise and this is only a snapshot in time. As you can see, and as anticipated, some markets in this snapshot have performed better than others, although this is not a guarantee of future performance.

The new tax year 2024/2025 and the summer ahead

Checking and reviewing all your financial arrangements is always recommended, but perhaps more than ever this summer. There are many political facets to this year, both in the UK and abroad, and being ready with your overall financial planning and household budgeting is likely to be a far better position than addressing financial issues at hand later.

With the summer ahead and a myriad of sport on the agenda, such as the European football, the tennis, and of course the Olympics in Paris to enjoy, we look forward to working with you into the future.

Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899