Charles Reynolds & Associates

UK economy dodges ‘triple-dip’ recession

Andrew — Tue, 07 May 2013 13:17:16 +0000

Despite widespread concerns to the contrary, the UK managed to avoid slipping into its third recession in five years. The economy grew at a relatively subdued rate of 0.3% during the first three months of 2013, underpinned by improving activity in the services sector. Gilt prices fell and yields – particularly yields on short-dated gilts – rose following the news. During April as a whole, the yield on the benchmark 10-year UK government bond fell 0.09% to end the month at 1.69%. In all, 10-year gilt yields have fallen 0.45% over the first four months of the year.

The annualised rate of consumer price inflation remained unchanged at 2.8% in March compared with February, and the Bank of England expects inflation to increase to around 3% by the middle of the year, fuelled by higher prices for seasonal foods. The UK’s central bank held UK interest rates at their lowest-ever level of 0.5% for yet another month during April. Rates have remained unchanged for more than four years and, although the Bank’s Monetary Policy Committee is still divided over the future path of quantitative easing, policymakers remain unanimously in favour of keeping interest rates on hold.

The International Monetary Fund (IMF) cut its forecast for global economic growth in 2013 from 3.5% to 3.3%. In comparison, the organisation expects the UK economy to expand by 0.7% this year, and by 1.6% next year. The IMF urged the coalition government to consider moderating the pace of spending cuts, if economic growth fails to gain traction. In response, Chancellor of the Exchequer George Osborne insisted that, despite a “fragile” outlook, the UK should maintain its programme of “difficult but necessary” policies in order to deliver sustainable growth in the longer term.

Ernst & Young’s respected ITEM Club expects to see a rise in bank lending to individuals and businesses, boosted by a strengthening economy. In particular, the group forecasts a rise in lending to businesses for the first time in four years, although there are still concerns about the “large number” of companies being sustained by exceptionally low interest rates and a reluctance among lenders to write off bad loans. The Bank of England intends to expand its Funding for Lending Scheme, which aims to encourage banks to increase lending to households and to medium-sized and smaller companies. The scheme was scheduled to close at the beginning of 2014 but will now end in January 2015.

The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.

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Geopolitical concerns spook investors but Japan soars

Andrew — Thu, 02 May 2013 13:17:39 +0000
Share prices generally advanced during April, although the month was marred by geopolitical concerns. Investor sentiment was undermined by increasingly confrontational rhetoric directed from North Korea to South Korea and the US. Ongoing tensions also escalated between Japan and China over the disputed ownership of islands in the East China Sea while stockmarkets wobbled mid-month following the Boston Marathon bombings.
In a move designed to promote economic growth and address Japan’s longstanding problem with deflation, the Bank of Japan announced a significant expansion of its stimulus measures. The news provided fresh support for share prices and April saw the Nikkei 225 index reach its highest level since the middle of 2008. In a sign of increasing optimism, the central bank raised its forecast for the country’s economic growth during the current financial year from 2.3% to 2.9%. The Nikkei 225 rose 11.8% during April and has soared by more than 33% since the start of the year.
Despite fears to the contrary, the UK managed to avoid falling into its third recession in five years. Preliminary data showed the UK economy expanded by 0.3% during the first quarter of 2013, boosted by stronger activity in the services sector. The FTSE 100 index rose 0.3% over April as a whole and has posted an increase of 9% over the year to date.
The US economy expanded at an annualised rate of 2.5% during the first quarter of 2013, boosted by robust consumer spending figures. The US Federal Reserve announced a slightly improved opinion of the economy, encouraged by signs of strengthening activity in the manufacturing, construction and automobile sectors. President Obama announced controversial measures to reduce the country’s deficit by increasing taxation on the wealthiest individuals while reducing spending on social security and healthcare. The Dow Jones Industrial Average index reached further new highs during April and in total rose by 1.8% over the month.
At the start of the month, European leaders and Cyprus reached agreement on measures that will provide Cyprus with bailout funds totalling €10bn (£8.5bn). Ireland and Portugal were granted an additional seven years to repay their bailout loans. Elsewhere, research from Markit suggested Germany’s economic activity is slowing down. During April, the country’s Dax index rose 1.5%. Meanwhile, Italy succeeded in forming a new government, raising hopes for swifter economic reform, and the FTSE MIB index rose by 9.3% over the course of the month.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.
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Changes to Child Benefit

Andrew — Mon, 15 Apr 2013 13:22:26 +0000
More than a million UK families found themselves a little bit worse off in 2013, following changes to the payment of Child Benefit. Until recently, Child Benefit was paid to more than 7.8 million families with some 13.7 million children. However, from 7 January 2013, families in which one parent earns above £50,000 a year lost their entitlement to some or all of their Child Benefit payment. In the coalition government’s 2012 Budget, Chancellor of the Exchequer George Osborne announced a plan to recoup a proportion of Child Benefit payments from families in which one parent earns above £50,000, via that parent’s self-assessment tax return, and to remove it completely if the individual’s earnings rise above £60,000 a year.
In cases where one parent earns above £60,000, the parent who claims Child Benefit can opt to stop claiming it or to continue to receive the payments, which will then be recovered from the higher-earning parent through their self-assessment tax return. However – and somewhat controversially – these rules do not apply if each partner’s earnings are below £50,000 a year but their combined earnings are above £50,000.
At the start of 2013, Child Benefit was being paid at a rate of £20.30 a week for the first child and £13.40 a week for each additional child. During the tax year 2011/12, Child Benefit is calculated to have cost £12.22bn and the new measures are expected to generate savings of £1.7bn every year from 2014/15. About 1.2m families have been affected by the changes, with around 70% of these losing their entire Child Benefit and the remaining 30% losing a proportion. HM Revenue & Customs calculates the average loss will be approximately £1,300 a year.
Some families will feel the loss of their Child Benefit payments more keenly than others. Either way, the changes represent a good time to re-examine your family’s savings and investments and to ensure they are structured as efficiently as possible. Are you, for example, making the most of tax allowances and tax-efficient savings structures such as individual savings accounts (Isas) and Junior Isas?
Perhaps you could consider transferring income-generating assets to your spouse, if they pay a lower rate of tax. Moreover, it is worth remembering that certain adjustments to your income – such as contributions to a pension scheme – could reduce your total income below the level at which you start to lose your entitlement to claim Child Benefit.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.
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Investing in stocks & shares ISAs

Andrew — Thu, 11 Apr 2013 13:27:50 +0000
The entire 2013/14 tax year Isa allowance of £11,520 can be invested into a stocks and shares Isa. There is a vast and ever increasing range of different investment options from which to choose, offering not only huge flexibility in how you invest but also access to the whole range of global stock and bond markets.
For the investor who knows what they want, Self-select Isas offer the most flexible approach, allowing you to choose your own shares or collective investment funds. These schemes cover a range of asset classes and markets, so you can make up your own portfolio – or use your Isa allowance to target one specific investment to complement your wider portfolio. However, choosing your own shares can be a risky approach and, unless it forms part of a wider share portfolio, can concentrate your investment around the fortunes of just one or two companies. Many investors therefore choose to put their Isa allowance into something more diversified, such as a collective scheme or fund, which reduces risk by accessing a whole selection of shares for a relatively small investment.
There are many funds to choose from and some prioritise income and some capital growth. Over the long term, those with a higher equity content have generally offered higher returns than equivalent investments in cash, bonds or commercial property. However, equities can go down as well as up and have been volatile. Funds are grouped into categories to give you an indication of their aims. For example, the ‘Mixed Investment 20-60% shares’ category will have no more than 60% in shares. More aggressive funds may be found in, for example, the UK All Companies, UK Smaller Companies or Global Emerging Markets sectors.
If you need income from your Isa then you may wish to consider a fund that delivers regular dividend, rental or interest payments. The three main choices are equity income, commercial property or bonds. There are a number of funds that combine these asset classes together, thereby producing income from a more diversified portfolio.
Ultimately, the choices you make for your Isa have to reflect your aims and goals and sit within any wider portfolio you might hold. If you want to make sure you have covered all the options available, you can always seek professional advice. Please also remember past performance is not a reliable indicator of future results.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.
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FTSE 100 surges to five-year high in March

Andrew — Wed, 03 Apr 2013 13:36:21 +0000
In common with many other major equity markets around the world, UK share indices forged ahead during March. Indeed, investors managed to shrug off some anaemic economic data and a downbeat annual Budget statement – not to mention renewed turmoil in the eurozone as Cyprus narrowly avoided default – to propel the FTSE 100 index to its highest level since 2008.
Overall, the index of the UK’s biggest businesses climbed 0.8% during March and by 8.7% over the first quarter of 2013. Further down the size spectrum, medium-sized companies performed particularly well, with the FTSE 250 index up 5.2% over March and by 10.7% since the start of the year. Meanwhile, the FTSE SmallCap index posted a monthly increase of 3% and a first-quarter increase of 9.4%.
The financial sector remained under scrutiny during March and the Bank of England ordered several leading UK banks to raise additional capital totalling £25bn by the end of 2013. This move was designed to support lending to the real economy while increasing protection against potential losses that relate to high-risk loan portfolios with exposure to UK commercial real estate and vulnerable eurozone economies.
Meanwhile, according to a report from KPMG , the UK’s leading banks – Barclays, HSBC, Lloyds, RBS and Standard Chartered – generated a 45% increase in core profits during a “dire” 2012;. This profit was, however, wiped out by the cost of “past mistakes” and the revaluation of the banks’ own debt. Nevertheless, the report acknowledged UK banks have “made progress”, adding: “They have strengthened their balance sheets and are becoming better able to carry out their essential function of providing support to businesses and promoting economic growth.”
According to the latest statistics from the Investment Management Association, total funds under management exceeded £700bn for the first time ever during February. Equity funds achieved net retail sales of £940m – their highest level since April 2011 – and equities accounted for four of the top-five best-selling sectors during the month.
In general, demand for UK-oriented equity funds gathered pace during February and in total experienced net inflows of £190m. However, most of these inflows were attributable to the UK Equity Income sector, which was the third-best-selling fund grouping during the month. The UK Smaller Companies sector also experienced modest inflows but the broader UK All Companies sector experienced net outflows and proved to be one of the least popular fund groupings overall.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.
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The benefits of regular savings

Andrew — Wed, 03 Apr 2013 13:29:48 +0000
In the world of investment, timing is everything. However, no matter how much hype we hear to the contrary, it is a fact that no one can predict what the market will do or when. This makes it difficult, not only deciding when to invest but also when to pull your valuable investments out of the market.
This is where the benefits of ‘pound cost averaging’ come into play – or in layman’s terms, regular savings. The theory is that by regularly putting smaller amounts of money into a fund or other investment, the risk of getting your timing wrong is reduced. Compared with punting an entire large lump sum in one go at a single price, the risk is mitigated by the fact your smaller sums will buy in at a variety of prices.
In a rising market, regular savings would underperform the growth of a single lump sum as the later investments would miss out on that rise in the early days. However, in an up-and-down or falling market, the opposite is true. Later investments would buy in at lower or alternating prices – some lower than the original price – and would therefore gain a little more when the market finally did rise.
Similarly, regular saving is a great way to build up a lump sum from zero. A lump sum of £5,000 can seem a tall order for some people. However, putting aside £100 a month from your income is less of an issue – and with investment growth or interest added you can quickly build up a reasonable amount without really noticing. The longer you leave it, the more impressive that growing amount potentially becomes.
Most investment products offer regular savings as an option, including investment funds, Isas, life assurance and pension plans. If you are considering equities for the first time, this is also an ideal way to start as the small amount you miss every month has less impact on your lifestyle – and you will be less sensitive to the short-term ups and downs of markets as falling prices give you the chance to buy the same investment at lower prices.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.
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Give and take

Andrew — Fri, 22 Mar 2013 13:49:09 +0000
The Budget held few surprises on taxation, with many of the changes well-flagged – not least by the Evening Standard. Chancellor of the Exchequer George Osborne finally fulfilled the coalition promise of a £10,000 personal tax allowance – for individuals born after 5 April 1948 the allowance will increase from £8,105 to £9,440 in 2013/14 and £10,000 in 2014/15. It will then increase in line with the consumer prices index.
However, a fiscally neutral budget saw the Chancellor take as well as give and the basic rate limit was reduced from £34,370 in 2012/13 to £32,010 in 2013/14 and £31,865 in 2014/15. Individuals will therefore start to pay 40% income tax at a progressively lower threshold. The highest rate of income tax will, however, still fall from 50% to 45% from 6 April 2013.
Changes to Isa limits had already been announced. There is an overall investment limit of £11,520 for 2013/14, up from £11,280, with a cash maximum of £5,760. For Junior Isas the overall limit has risen from £3,600 to £3,720. Pension limit changes also held no surprises – the annual allowance reduces to £40,000 and the lifetime allowance to £1.25m from 2014/15. The inheritance tax nil-rate band remains frozen at £325,000 until April 2018, three years longer than previously stated, to help fund the cap on care costs for older people.
Government also plans to proceed with tax breaks on ‘employee shareholder’ employment status, announced last year. Individuals adopting this status are eligible to receive between £2,000 and £50,000 worth of capital gains tax-exempt shares. There were also plans to reduce the income tax and National Insurance liabilities arising when employee shareholders receive shares, with the first £2,000-worth tax-free.
The Chancellor extended reinvestment relief for seed enterprise investment schemes, which were introduced in 2012 as an incentive for individuals to buy new shares in smaller companies. The venture capital trust (VCT) limits remained unchanged but Osborne was critical of some current buy-back schemes, where investors can receive further tax relief on VCT investments rolled over after the qualifying period. There were also a range of measures introduced to target UK residential properties valued above £2m, held by ‘non-natural persons’, including higher stamp duty land tax and capital gains tax rates.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.
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Keep taking the medicine

Andrew — Thu, 21 Mar 2013 13:38:36 +0000
The 2013 Annual Budget Statement painted a somewhat bleak economic picture, alleviated by a few crowd-pleasing bright spots. Chancellor of the Exchequer George Osborne cut the predicted level of growth in the UK during 2013 from 1.2% to 0.6%. The UK’s borrowing is expected to increase to £114bn in 2013, then forecast to start falling in 2014. For its part, the Office for Budgetary Responsibility does not expect net debt to fall until 2017/18 – a year later than previously anticipated. Further cuts in government spending were also announced.
The UK is expected to avoid tipping back into recession this year, although the Chancellor warned that further turbulence in the eurozone could hamper economic recovery. He maintained that the coalition government’s economic policies were proving effective, although he admitted that “it is taking longer than anyone hoped.
A new Employment Allowance will cut companies’ National Insurance bills by £2,000 while 450,000 smaller companies will be exempt from paying employers’ National Insurance contributions. Corporation tax will be reduced by one percentage point to 20% during 2015, giving the UK “the lowest business tax of any major economy in the world.
The government pledged to guarantee £130bn-worth of new mortgage loans for three years, starting in 2014. The move aims to help prospective homebuyers who cannot find the money for the large deposits demanded by many mortgage lenders. Meanwhile, new ‘Help to Buy’ measures will enable homebuyers to receive interest-free loans over five years of up to 20% of the value of newly built homes worth up to £600,000.
The Chancellor announced a controversial tax relief of 20% on childcare costs of up to £6,000 per child from 2015. Meanwhile, the Personal Allowance – the amount an individual is allowed to earn before they start paying income tax – will rise to £10,000 in 2014, and the single-tier weekly pension payment of £144 per week will be introduced in 2016 – a year earlier than previously planned. Another measure will see Equitable Life policyholders who lost money on with-profits policies bought before 1992 receive payments of at least £5,000.
The Bank of England’s target for 2% inflation remained unchanged although the remit of its policymakers was widened to include a focus on economic growth. The move affords greater flexibility for the UK central bank’s policymakers, allowing them additional scope to make decisions that will keep inflation stable while supporting the broader economy.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.
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UK loses AA credit rating

Andrew — Thu, 28 Feb 2013 13:33:41 +0000
The UK has finally lost its precarious foothold among the rapidly dwindling band of triple-A-rated countries. At the end of February, credit rating agency Moody’s downgraded the UK’s sovereign debt rating by one notch – from AAA to AA1 – relegating the UK to the second tier for the first time since 1978. In its announcement, Moody’s cited “the increasing clarity that, despite considerable structural economic strengths, the UK’s economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy”.
Although the announcement made headline news, it was far from unexpected and the possibility of a downgrade had been well flagged. The coalition government is taking longer than expected to reduce the UK’s sizable deficit and all three leading credit rating agencies – Fitch, Moody’s and Standard & Poor’s – had already placed the UK on a “negative” outlook during 2012, stoking expectations of a downgrade.
Credit ratings provide an indication of a government’s capacity to repay its debts but any concerns the downgrade might lead to a rise in the borrowing costs for the UK appear overplayed – at least if the recent experiences of the US and France are any indication. The US lost its AAA status in August 2011 while France was downgraded in November 2012. Far from triggering a catastrophe, the borrowing costs of both nations have declined since their respective downgrades while their main stockmarket indices have risen significantly.
Looking ahead, the implications of the UK’s downgrade are likely to prove more political than economic. Moody’s announcement highlighted the challenges that “subdued medium-term growth prospects pose to the government’s fiscal consolidation programme” and the coalition government continues to face substantial challenges in its attempts to reduce the UK’s debt levels. Politicians have placed considerable value on the UK’s top credit rating – indeed, in the Conservative Party’s manifesto of spring 2010, George Osborne pledged to “safeguard Britain’s credit rating”. As such, the news of the downgrade puts more pressure on the Chancellor of the Exchequer than on the economy itself.
On balance, a drop in the UK’s credit rating is likely to make little difference to the fundamental performance or health of the country’s economy. Although Moody’s decision highlights the challenges faced by the government, the downgrade itself is likely to represent a symptom of the existing problems rather than a catalyst for fresh trouble.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.
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A better deal for retirees?

Andrew — Wed, 13 Feb 2013 09:19:52 +0000
The complicated and sometimes imbalanced world of annuities is heading for a welcome shake-up. At present, when retiring, many individuals opt for the perceived simplicity of buying an annuity from their pension scheme provider. However, many people do not realise they can purchase their annuity from any provider – they are not obliged to stay with their pension company.
Accordingly, the Financial Services Authority (FSA), the financial services watchdog, has announced a review of annuities. This will focus on the risks incurred by consumers who do not shop around before purchasing an annuity, in order to establish whether they are losing out. It will also examine the rates available to consumers through the Open Market Option, compared with the rates available exclusively to existing pension policyholders.
Furthermore, the review will evaluate whether consumers’ ability to shop around is helped or hindered by providers and whether the problem is concentrated among particular consumer groups or annuity providers. “An annuity purchase is an important one-off decision that has long-term consequences for individuals if they get it wrong,” notes the FSA.
Of course, it is not just enough to shop around when buying an annuity – you also need to know what you are shopping around for. Annuity rates have plunged over recent years and financial website Moneyfacts calculates annuity incomes have fallen in 15 of the past 18 calendar years. Meanwhile, the average annual annuity income for a 65-year-old man has plummeted by 56% since 1994. The difference between the best and worst payout you can find in retirement is significant.
According to ratings agency Fitch, life insurers Prudential, Aviva, and Legal & General reap the greatest benefit from the propensity of savers to buy their annuity from their pension scheme provider. Annuities account for about 30% of UK sales at Prudential and Aviva, and more than 15% at Legal & General and, notes Fitch, annuities generate higher margins than most other UK financial products.
Before buying your annuity, it is vital to take expert advice. You have worked hard to build up your pension pot so, when the time comes for you to buy your own annuity, do yourself justice by making sure you get the best possible deal. Many people continue to labour mistakenly under the impression they have to buy their annuity from their pension provider and yet, simply by shopping around, you could enjoy anything up to20% in extra retirement income.
The contents of this article should not be construed as advice and do not necessarily reflect our views. Financial Advice should always be attained in order to assess your own individual circumstances.
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