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The pros and cons of downsizing

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The pros and cons of downsizing

Wednesday, September 13th, 2017

If your family has grown up and flown the nest and you’re moving closer to retiring, it’s likely that you’ve at least thought about downsizing your home. For some it can be for practical reasons, for others it might be a desire to be closer to their children if they’ve relocated, for others still it might simply be the desire for a change of scenery as they move into the next chapter of their life. But there are pros and cons to downsizing which need to be considered before you make what is always going to be a fairly major personal and financial decision.

The potential benefits of downsizing can be numerous. Living in a smaller home means you’re likely to save money on energy bills, house insurance, council tax and many other costs, allowing you to spend more of your pension income on enjoying life after work. It can also make looking after your home much easier so that you’re spending less time and effort on cleaning, maintenance and repairs as you get older.

In the current economic climate, many older people are choosing to downsize in order to free up funds. For some, this might be with the aim of boosting their own nest egg; for an increasing number of others, this is done in order to help their children get on the property ladder themselves. A loan or gift from the Bank of Mum and Dad has to be funded somehow, and if much of your capital is tied up in your home, downsizing often seems like a good way of obtaining the funds needed for a deposit on a first home.

However, just as the housing market is making it increasingly difficult for first-time buyers to secure a home, it’s also making it more and more challenging for those who want to downsize to be able to do so. Many who want somewhere smaller to make maintaining their property easier are finding that the cost of moving simply means staying put and paying for a cleaner or handyman is the more sensible option. For others, the shortage of houses means that finding a smaller property which suits their needs whilst providing the financial benefits is simply too tall an order in 2017.

So, whilst there are definite potential benefits of downsizing which can potentially help you and your family as you reach your retirement, it’s also worth remembering that those positives are not guaranteed. Moving house is both a major financial and emotional consideration at any point in your life, so make sure you have considered exactly what you will get out of downsizing before making the decision to do so.

Photo:freeimages.co.uk

Kids off to Uni? But have you been saving enough?

Wednesday, September 6th, 2017

Recent figures from the Institute of Fiscal Studies suggest that the average total debt incurred by today’s university students over the duration of their studies amounts to £51,000. The new figure comes as those in higher education see the interest rate on student loans rise to 6.1% in September, despite the Bank of England base rate remaining at its lowest ever figure of just 0.25%. The rise means that students will now typically have mounted up £5,800 of interest by the time they graduate. Total student debt in the UK has now risen to £100 billion, a figure higher than the nation’s total credit card debt.

The rising cost of higher education perhaps makes it unsurprising that 40% of parents are now beginning to save towards future university costs before their children have even been born, with one in five hoping to have saved £2,000 by the time the baby arrives. Frustratingly, however, around two thirds of those who are saving are doing so by simply placing the funds in an ordinary savings account, meaning their money is earning them very little in interest.

An alternative option to consider is a Junior ISA (JISA) in the child’s name, which they can then access when they turn 18. The account currently allows £4,128 to be saved every year, and the best rate market rate for a cash JISA offers 3.25%. Saving the maximum amount at that rate for ten years would result in a nest egg of £49,427 tax free to cover university fees with plenty left over for other expenses.

Whilst a cash JISA offers dependability, a stocks and shares JISA is also worth considering as the potential reward on your investment can be higher. Both types of JISA can be opened at the same time with the allowance shared between them, so spreading your savings between the two can pay off in the long run.

Using your pension to save towards your child’s university education is also an option, thanks to the pension freedoms of recent years. With the ability to take a lump sum to put towards fees and other costs when you turn 55, pensions offer a tax-efficient way of putting away for both your child’s future and your own. This is an option which needs careful planning, however, as you’ll need to make sure you have enough for your retirement before paying for your child’s education.

For those able to do so, it may also be worth speaking to your own parents about helping towards their grandchildren’s university costs. Rather than leaving money to a grandchild in their will, a grandparent might consider gifting towards fees and other expenses or placing the money in a trust, reducing their inheritance tax liability and allowing their grandchild to benefit from their legacy when they really need it.

£94bn lost by holding money as cash

Wednesday, September 6th, 2017

A new report has revealed that the UK’s working adult population has missed out on a staggering £94 billion over the past five years through failing to invest in the stock market and holding their money in savings accounts. The figure comes from public policy think tank, The Social Market Foundation, which has also found that more than £200 billion worth of cash is being held by savers above the recommended three months’ worth of income or ‘rainy day’ level of savings that should be kept available.

The think tank has urged the government to do more to inform and encourage savers about diversifying their savings and investments, as the figures suggest many are devaluing the money they’ve worked hard to put away, thanks to high inflation and low interest rates. More worryingly, the report reveals that more than 14 million working adults in the UK are not saving whatsoever and that more than 26 million have inadequate pension savings.

Had UK savers invested in peer-to-peer loans instead of the stock market or simply left the money sitting in a savings account, the returns they would have seen could have amounted to £40 billion. As such, the report recommends the government markets up to 25% of both its Future Britain Funds and National Productivity Investment Funds to the public. This would not only give savers the opportunity to grow their savings, but would also allow them to invest in the country’s future. This could lead to investment of at least £30 billion in these ‘Britannia bonds’ in the next five years, which would provide greater funding for infrastructure.

Another recommendation from the report suggests that the government give £1,500 to every 15-year-old from 2020, funded by money saved by reducing the ISA allowance. With the help of real life financial education, the teenagers would then use the money to invest in a range of asset classes. This would not only help young people to learn the benefits of wise saving and investment practices, but would also ensure they have at least some financial assets as they head towards life outside secondary education.

August market commentary

Monday, August 7th, 2017

July got off to the best possible start when Janet Yellen, Chair of the US Federal Reserve, announced that there would be no more financial crises “in our lifetime.” Speaking on a trip to London, she said that the reforms of the banking system since the 2007 to 2009 crash had “minimised the risk of a similar disaster happening again.” Phew, that’s alright then. And if you’re reading this commentary, Ms Yellen, just skip over the bit about Italy…

Sadly, the word ‘crisis’ isn’t just confined to banking. July was the month when Kim Jong-un got a little feisty with an ICBM launch at the beginning and end of the month. The Washington Post described the first test as ‘a grave milestone’ and the regime in Pyongyang claimed the second test brought ‘the whole of the US within range.’ At the beginning of August, CNN was reporting ‘unprecedented levels’ of North Korean submarine activity: the situation is only going to get worse.

In fact, there was plenty to worry about in July. Lloyds of London warned that a global cyber-attack could cost the world economy $53bn, there were simmering tensions between China and India and the IMF downgraded its growth forecasts for both the UK and the United States. Meanwhile, at the G20 summit in Hamburg President Trump fell out with all the other world leaders over climate change. Then he went back to Washington to sack most of his administration…

Despite all this, July was by and large a good month for world stock markets, with three of the markets we cover making appreciable gains and none seeing significant falls.

UK
There was mixed news for the UK economy during July. As we reported above, the IMF downgraded its forecast growth for the year, cutting it from 2.0% to 1.7%. There was also bad news on productivity – the constant theme running through George Osborne’s Budget speeches – which the Office for National Statistics reported had dropped back to pre-financial crisis levels.

Figures for May showed that UK manufacturing had fallen – although this was largely due to a 4.4% drop in car production – and consumer spending had its worst quarter since 2013 in the three months to June, with expenditure dropping 0.3% year-on-year.

Against this, unemployment fell a further 64,000 to 1.49m, bringing the unemployment rate to 4.5% – the lowest since 1975. The number in work rose to 32m, the highest figure ever recorded and up 324,000 on the previous year. London remains Europe’s leading tech hub and both Google and Amazon have recently announced plans for substantial new investment in the city.

Even retail sales gave a glimmer of hope (despite the downturn in consumer spending) as sales rose 0.6% in June for a quarterly jump of 1.5%. And having surged to 2.9% in May, inflation dropped back to 2.6% in June, helped by lower fuel prices.

The UK mirrored the example set by France (see below) in announcing that new petrol and diesel cars will be banned from 2040. BMW followed this announcement by revealing that its new electric Mini will be built in Cowley – giving a huge boost to the car industry and the West Midlands.

With economic growth in the second quarter of the year edging up to 0.3% from the 0.2% seen in the first quarter, it is probably fair to say that the UK ended July with its glass slightly more than half full. That was the view taken by the FTSE-100 index of leading shares, which closed the month up 1% (and 3% for the year as a whole) at 7,372. Helped by fears that a rate rise in the US will now be delayed, the pound ended the month at $1.3224 – it is now up by 7% against the dollar for the whole of 2017.

Brexit
Do you remember when you were at school? The teacher would go out for five minutes, tell you to carry on with your work and the class would immediately descend into chaos.

In July, that’s how it was with Her Majesty’s Government. Theresa May went on holiday and the class immediately started fighting over Brexit. Philip Hammond seemed to favour a never-ending transition period after leaving the EU and ‘friends of Boris Johnson’ muttered darkly in corners. Ultimately, 10 Downing Street announced that free movement would end in March 2019, but you really do suspect that no-one has any idea.

Business organisations – speaking via the CBI – definitely want some sort of transition deal after Brexit, but credit ratings agency, Moody, suggested that there was now a ‘substantial probability’ of no deal being reached. Given the fact that all 27 members of the EU will need to agree the deal and there is just 19 months to go until March 2019 that view is looking increasingly credible. With Europe now largely on holiday for a month and then the German elections due in mid-September, it is easy to see it being October before any significant progress is made.

Europe 
As in the UK so it was in France, with Ecology Minister Nicolas Hulot announcing a ban on the sale of any car that uses petrol or diesel fuel by 2040. There is some way to go however: at the moment, hybrid vehicles make up 3.5% of the French market, with pure electric vehicles accounting for just 1.2%. The announcement was part of a renewed commitment to the Paris climate deal, with Hulot saying that France planned to become carbon neutral by 2050.

However, both the UK and France were beaten to the punch by Volvo, with the Swedish-based, Chinese-owned company announcing that all its new models will have an electric motor from 2019. Geely, Volvo’s Chinese owner, has been quietly pushing ahead with electric car development for more than a decade and now plans to sell one million electric cars by 2025.

There was good news in Spain, as the economy grew by 0.9% in the second quarter of the year, finally taking it back to the size it was before the credit crunch of 2008. But there was less good news in Italy – this is the bit you might care to skip, Ms Yellen – where CNBC described the Italian economy as a ‘basket case.’ The country has €2tn of public debt, which is around 133% of the country’s GDP and – as we have reported in previous commentaries – several of the country’s banks have needed rescuing, burdened by loans that will simply never be repaid. ‘No more financial crisis in our lifetime’ is a laudable aim, but it reckons without the Italian banks.

…But let us leave Europe with our glass half full: the unemployment rate in the European Union has fallen to 9.1% – the lowest level since February 2009.

The major European stock markets were both down in July, but not by any significant amounts. The German DAX index fell 2% to 12,118 while the French stock market dropped just 1% to close the month at 5,094.

US
Let’s start by sparing a thought for Amazon boss, Jeff Bezos, who for one glorious day in July was briefly the richest man in the world as Amazon shares rose. Then they released disappointing figures, ungrateful investors sold the shares and poor old Jeff was back in second place, grubbing along on $89bn and still behind Microsoft boss, Bill Gates.

Not that July was a great month for Microsoft as it announced plans to cut ‘thousands’ of jobs worldwide in a bid to get its cloud computing business to compete more successfully with Google and – you guessed it – Amazon.

In the wider US economy, though, there was good news on US jobs as figures for June showed 220,000 new jobs created and unemployment remaining low at 4.4%. However, that was countered by bad news on retail with sales down by 0.2% for the month, against an expected 0.1% rise. Coupled with inflation falling to 1.6% this led many commentators to speculate that a future rise in interest rates would be postponed.

Google’s bottom line was hit as the company was handed a $2.7bn fine by the EU for promoting its own shopping comparison site at the top of search results – but that is just petty cash for Facebook, where advertising revenues for the second quarter climbed to $9.3bn with more than a quarter of the world’s population now logging onto the site each month.

There was even better news for the US at the end of the month as figures for the second quarter showed that the US economy had bounced back from weak growth in the first quarter, growing at an annualised rate of 2.6% between April and June. No surprise then that the Dow Jones Index finished the month up 3% at 21,891.

Far East 
The main story in the Far East was the growth of the Chinese economy in the second quarter of the year, which came in at 6.9%. That is equal to the growth in the first quarter and well ahead of the official target for the year, set at 6.5%.

Clearly, plenty of lenders are confident that the Chinese economy will continue to grow as figures from the Bank for International Settlements showed a surge in lending to China and Chinese companies: international banks lent $92bn to China in the first quarter of the year, well up on the same period in the previous year.

Woe betide us all if the Chinese economy ever slows down, but in the meantime there was no slowdown at Samsung as the South Korean tech giant reported record profits thanks to a surge in demand for memory chips. Profits were £9.3bn for the three months to June, up 72% on a year earlier.

China announced that it will now allow rice imports from the US – watch out for President Trump sacking his Rice Commissioner any day now – and also unveiled plans for a new ‘unhackable’ internet. To be centred on the town of Jinan, some 200 users from the military, government, finance and electricity sectors will be able to send messages secure in the knowledge that only they are reading them. No doubt that will be seen as a challenge by North Korean hackers…

As well as his successful missile tests, there was more good news for the Supreme Leader when figures showed that the North Korean economy had grown at its fastest rate for 17 years, largely based on mining, energy and exports to China. It is easy to see where North Korea is spending the money, and the month ended with more worrying news as China and India exchanged a war of words over disputed territory on the Doklam Plateau in the Himalayas, which is claimed by both China and Bhutan. China warned India – which is backing Bhutan in the dispute – that it will defend the territory “at all costs”.

Away from all the squabbling, what happened on the Far Eastern stock markets? The Chinese and Hong Kong markets both enjoyed a good month rising 3% to 3,273 and 6% to 27,324 respectively. The Japanese index was down 1% at 19,925 and the South Korean market barely moved – finishing just 11 points higher at 2,403. On a year-to-date basis, both the South Korean and Hong Kong markets have done exceptionally, with respective gains of 19% and 24%.

Emerging Markets 
For once a quiet month in the Emerging Markets section with – you will find this hard to believe – no Brazilian politicians being arrested for corruption. Instead, we will simply concentrate on reporting some encouraging performances on the major stock markets, with all three of the markets we cover up in July. The Russian index – after a very disappointing first half of the year – was up 2% to 1,920: the Brazilian market was up 5% to 65,920 and the Indian index up by a similar amount to 32,515. The Indian stock market is now up by 22% for the year as a whole.

And finally 
July was another fine month for the ‘And finally’ section of this commentary, beginning with a Texan contractor (understandably he preferred not to be named) who trapped himself inside a Bank of America ATM whilst changing the lock. He was rescued when a customer tried to withdraw $100 and instead received a note saying, ‘Please help, I’m stuck in here.’ He naturally thought it was a joke, but on failing to spot any TV cameras and hearing a faint voice coming from the hole in the wall, the customer decided to call the police…

…Never mind, perhaps machines will take over from those useless humans. Or maybe not. A security robot in Washington was tasked with patrolling the foyer of an office building. Instead, it patrolled itself straight into the building’s fountain and ‘drowned.’ So much for 21st Century technology. ‘We were promised flying cars,’ wrote one observer on Twitter, ‘Instead they’ve given us suicidal robots.’

Never mind, the makers of the robot can always console themselves with a cup of tea and Kit Kat – unless they happen to be in Japan. Nestle have opened a new factory there to make ‘exotic Kit Kats’ for which there is apparently a booming market in Japan. The new factory will make a range of flavours – among others – green tea and wasabi flavoured – maybe not to everyone‘s tastes..!

Sources

Companies that have seen magical profits from Harry Potter!

Sunday, July 23rd, 2017

On 26th June 1997, the first edition of Harry Potter And The Philosopher’s Stone – the first in what would become a series of seven novels written by J. K. Rowling about the boy wizard – was released in the UK. Twenty years on, Potter is one of the hottest literary franchises around with more than 450 million copies of the books sold in 79 different languages worldwide. There’s no doubt that Harry Potter has been a source of considerable profits for many, but who have been the biggest winners in this game of financial Quidditch over the past two decades?

Bloomsbury – After being rejected by a number of publishers since completing the first novel in the series in 1995, it was Bloomsbury who finally gave Jo Rowling the break she had been looking for two years later by agreeing to publish The Philosopher’s Stone in an initial run of 500 hardback copies. Twenty years later, Harry Potter is still working his magic at Bloomsbury: last year alone the book series saw sales growth of 133%, with the publisher’s revenue increasing by 57%.

Warner Bros. – With the popularity of the novels amongst both younger and older readers, a transfer to the big screen was inevitable. Since the film adaptation of The Philosopher’s Stone was released in 2001, the nine films (including last year’s prequel spin-off Fantastic Beasts And Where To Find Them) have together earned over $8.5 billion worldwide from a collective budget of $1.335 billion. Potter has been a serious money-spinner for Warner Bros., who have distributed all the films to date and have a sequel to Fantastic Beasts due out in 2018.

Joanne Rowling – The woman who dreamt up Harry Potter has her creation to thank for taking her from rags to riches. A broke single mother at the time the first novel was published, Rowling’s earnings before tax in 2016-2017 were estimated to be around £73 million. Whilst the main source of her wealth still comes from book sales, she also earns money from the film adaptations and other sources such as revenue from the Wizarding World of Harry Potter theme park.

July market commentary

Friday, July 7th, 2017

June was a fairly quiet month.

Well, apart from the chaotic General Election in the UK. Oh – and the decisive win for Emmanuel Macron in the French parliamentary elections. And the start of the Brexit negotiations. And Italy was forced to bail out two more banks. President Trump pulled out of the Paris climate change agreement – and in Brazil, President Michel Temer was accused of corruption – the first sitting President in Latin America’s largest country to face criminal charges. Anything else? Just another global ransomware attack…

In fact, the only things that were quiet in June were the world’s leading stock markets. Of the 11 major markets we cover in this Bulletin, four were up, five were down and two were unchanged – but none of them by very much. If you wanted real excitement in June then you had to head to Greece, where the Athens Composite General, buoyed by EU ministers approving the latest Greek funding deal, was up by 6%.

UK

…But we begin the commentary with matters even more chaotic than the Greek economy: the UK General Election of 8th June. It was all meant to be so simple wasn’t it? Encouraged by a huge lead in the polls, record personal approval ratings and an opposition that appeared to be a shambles, Theresa May called the election as she sought her own mandate. Well, not so much an election, more of a coronation. But writing in the Telegraph in May, Nigel Farage sounded a warning note. “The more people see of Theresa May the less they like her,” he said. And so it proved. The Conservatives remain the largest party in the UK parliament, but have had to strike a deal with Northern Ireland’s Democratic Unionist Party. Meanwhile, the Prime Minister’s popularity continues to slump…

Away from the peace and quiet of politics, what of the UK economy? Figures for the first quarter of 2017, released by the Office for National Statistics, confirmed that UK growth was just 0.2% for the January to March period, putting the country next to Italy as the slowest-growing in the league table of the world’s advanced economies. The ONS also confirmed that inflation for May had risen to 2.9% and – with a figure in excess of 3% forecast for later in the year – most people are now suffering a fall in real wages. Not surprisingly, the ONS also confirmed that the UK savings ratio – the proportion of disposable income which households save – was at a record low, falling to 1.7% in Q1, down from 3.3% in the previous quarter.

So the UK glass is very much half-empty. Or is it? A recent CBI survey showed manufacturers’ order books at a 29 year high, with food, drink, tobacco and chemicals leading the way. The same survey showed export orders at a 22 year high: CBI Chief Economist Rain Newton-Smith said, “Britain’s manufacturers are continuing to see demand for ‘Made in Britain’ goods rising. Total and export order books are at highs not seen for decades, and output growth remains robust.”

This was reinforced when the World Bank upgraded their forecasts for UK growth over the next three years, increasing their estimate for 2017 to 1.7% from the 1.2% they had forecast in January. Growth expectations for 2018 and 2019 are 1.3% and 1.5% respectively.

Meanwhile, Rolls Royce has protected 7,000 engineering jobs in the East Midlands after announcing its biggest investment in the UK for more than a decade. It will be investing £150m in Derby, creating up to 200 extra jobs and safeguarding the other jobs for five years. Simon Hemmings, from the Unite union, said it was “a once in a generation investment and a big commitment to the UK.”

The FT-SE 100 index of leading shares closed the month down 3% at 7,313 as the pound rallied against the dollar, rising to $1.3026. The UK stock market is now up by 2.38% for the year as a whole: not a bad performance given the uncertainty surrounding the political situation and Brexit.

Brexit
The Brexit negotiations formally began on 19th June, 11 days after the General Election. So far – to use Macbeth’s phrase – we have seen plenty of ‘sound and fury’ but little of substance. However, several trade bodies have made their views known: the Engineering Employers Federation, for example, has called for a ‘softer’ Brexit, with access to the single market at the heart of the Brexit negotiations.

Equally, there have been plenty of dark mutterings in the corridors of Westminster: as Theresa May twists in the wind, Chancellor Philip Hammond is supposedly becoming an increasingly pivotal figure – and he is said to prioritise jobs and the economy over control of immigration.

However, it may well be that the real discussions don’t begin until after the summer holidays and the German elections in September. By that time the position of Theresa May should also be much clearer: if she survives the summer, she is likely to survive until the Conservative Party Conference in early October.

Europe
The big news in Europe continues to be French President Emmanuel Macron, who must surely be wondering what all the fuss is about. You decide to form a political party: a year later you are President. A month after that your party wins a majority. Politics, it is too easy…

His En Marche party did indeed win a majority in the parliamentary elections. Perhaps not as large as some of the early projections were forecasting, but En Marche and its allies in the centre took 350 of the 577 seats available. The real story, though, was the turnout, which fell below 50%, reflecting continued disillusionment with politics in France.

Turning to economic matters, the European Central Bank was in a bullish mood, increasing its forecast growth for the Eurozone in 2017 to 1.9% from the 1.8% it forecast in March. Growth is expected to be 1.8% next year and then 1.7% in 2019. ECB President Mario Draghi also forecast that Eurozone inflation will be 1.5% in 2017, down from an earlier forecast of 1.7%.

Also in a bullish mood was the German economy, with the trade surplus for April confirmed at €18bn and employment at the highest level since reunification. An extra 650,000 people were employed in May, taking the total in work to 44.1m.

And now to economies that are faring slightly less well…

Eurozone ministers have struck a deal to unlock the latest tranche of Greece’s bailout cash, releasing €8.5bn to the country. This will avert a debt crisis in July when the latest repayment of €7bn becomes due. So essentially, the EU has released money to Greece to pay back the money that was previously released to it: presumably that makes sense to someone… Meanwhile the Italian government was busy bailing out two Venice banks to the tune of €5.2bn: clearly it is not just the city that is sinking.

Also sinking were Europe’s leading stock markets. The French index was unmoved by the Macron majority and fell back 3% to close the month at 5,121. In Germany, the market was also down, falling 2% to 12,325.

US 
As we noted above, Donald Trump – as was widely expected – has pulled out of the Paris climate deal. Many US firms (Facebook, Goldman Sachs, Disney) reacted with horror to this latest demonstration of America First, but the coal industry welcomed the move, saying it would protect jobs and ease regulation. The Dow Jones Index seemed to broadly agree with the coal industry: it rose 0.6% on the news.

The US had added fewer jobs than expected in May, with payrolls increasing by 138,000 against the anticipated 180,000 – but this still resulted in unemployment falling further to 4.3%, the lowest level since 2001.

This perhaps prompted the Federal Reserve to raise interest rates for the second time this year, increasing them by 0.25% to a target range of 1% to 1.25%, the highest level since 2008. Chairman Janet Yellen said, “Our decision reflects the progress the economy has made and is expected to make.”

The IMF remained unimpressed and – citing ‘uncertainty about White House policies’ – trimmed its forecast for US growth to 2.1% for both 2017 and 2018, down from 2.3% and 2.5% respectively and well below the 3% the White House is targeting.

In company news, Facebook reached 2bn users, Amazon dipped into its back pocket and bought Whole Foods for $13.7bn and the EU competition commissioners gave Google a $2.7bn slap across the wrist for promoting its own shopping service.

More impressed than the IMF with White House policies and boosted by the news that US business confidence was at its highest for 3 years, the Dow Jones index closed the month up 2% at 21,350.

Far East 
We have written previously in this commentary about the scale of lending by Chinese banks, and many Chinese conglomerates have gone on spending sprees abroad on the back of it (several of them buying UK football clubs). However, President Xi Jinping, concerned about stability in the financial sector, has now launched a crackdown on these ‘financial crocodiles.’ It is generally felt among Western commentators that the Chinese financial sector is over-leveraged and under-regulated and this may possibly see the start of less financial investment overseas by Chinese conglomerates. Where it leaves the manager of your team if you need a new left back only time will tell…

One conglomerate that won’t be going shopping any time soon is Toshiba. Its troubles continued as it admitted that losses for 2016 may be even greater than previously forecast – perhaps up to £7bn from a previous estimate of £6.5bn. No such worries for Japan’s Softbank though, which bought Boston Dynamics, the robot-maker owned by Google’s parent company.

Three of the four major Far Eastern markets rose by 2% in June, with China’s Shanghai Composite Index closing at 3,192: the Japanese market went through the 20,000 barrier to end the month at 20,033 while the South Korean index continued its good recent run, ending June at 2,392. The only exception was Hong Kong, which was virtually unchanged at 25,765.

Emerging Markets 

As we noted above, Brazil’s President, Michel Temer, has now been formally accused of corruption, the specific charge being that at some point between March and April of this year the President took a bribe of $150,000 from Joesly Batista, the former chairman of a meat packing company. This is the latest salvo in an increasingly bitter war between the President and officials from the Department of Justice, who seem determined to build a case against him. The case will now go to the lower Chamber of Deputies, who must decide if the case has any merit.

There was some good news, however, as Brazil came out of recession after two years of negative growth during which the economy shrank by 8%. The longest recession in the country’s history was finally ended as growth of 1% was confirmed for the first quarter, with the economy boosted by a record harvest of soybeans, one of Brazil’s main exports.

The Brazilian stock market duly weighed up the good and bad news and decided to do nothing very much in June, ending the month virtually unchanged at 62,900. The other two major emerging markets we cover, India and Russia, were both down by 1% in the month, closing at 30,922 and 1,879 respectively. No – nobody accused that nice Mr. Putin of corruption…

And finally…
Can we find anything cheerful to end the commentary amid June’s doom and gloom? Perhaps not, as it appears that global beer sales are drying up. The International Wine and Spirits Record reported that worldwide beer sales were down by 1.8% last year, with overall alcohol consumption down by 1.3%. This marks a significant acceleration in the average fall of 0.3% seen over the last five years: the only bright spot on the horizon was the continuation of the gin revival. Worldwide sales of the iconic British drink rose 3.7% last year.

And what better to have with your favourite summer tipple than a new snack which is taking California by storm and has been hailed by Los Angeles lifestyle website ‘Hello Giggles’ as “genius.” West coast supermarket Trader Joe’s has been marketing the ‘Puff Dog’ – a beef sausage wrapped in puff pastry. Yes, ladies and gentlemen, the United States has finally invented the sausage roll…

Sources

Is uncertainty becoming the new norm?

Wednesday, June 21st, 2017

No matter how often we might have heard soundbites such as ‘strong and stable’ and ‘Brexit means Brexit’ which are intended to reassure us, it seems that every major political event of the past twelve months has delivered an unexpected result and an uncertain future. June’s general election was no different: Theresa May began streets ahead in the polls, and ended up scoring a political own goal in reducing the parliamentary majority she intended to increase, resulting in a hung parliament. You might expect the business world’s reaction to reflect the apparent turmoil in Westminster, but it’s relatively muted response perhaps suggests that those in business now see uncertainty as something to simply accept as part of daily life.

For example, the reduced Conservative majority and the alliance with the DUP they’re likely to establish in order to form a government, puts the future of the Tories’ plans to cut corporation tax to 17% in doubt. Whilst the DUP clearly think the same way – they want an even greater cut to 12.5% in Northern Ireland – the somewhat reinvigorated Labour party wants the tax to increase. Any tax changes, until the political climate has settled down again, will almost certainly be simple and symbolic, meaning that any action regarding business tax will most likely be put on the back burner.

VAT is another tax many might expect to be reviewed soon after a general election result but, again, the continued uncertainty of the UK’s political position means that this too is now unlikely. In the case of VAT, this stems not only from the divergent attitudes of the various parties towards the tax, but also through the continuing unpredictability surrounding Brexit. Theresa May’s negotiating position appears more severely undermined than ever, and the ‘hard Brexit’ the government previously appeared to be aiming for now seems almost entirely unlikely.

From an accounting point of view, we have seen many businesses try to ‘future proof’ themselves and manage the uncertainty by investigating the best forecasting tools available, in an attempt to secure the best chance of protection against any political or economic surprises the future might hold.

With Theresa May’s days in number 10 apparently numbered, the likelihood of a new Chancellor being put in place when her successor arrives, and the strong possibility of another election in the not-too-distant future, it seems we may all have to simply accept the lack of certainty we’re currently experiencing and factor this into our business plans as best we can.

Falling house prices for the third month in a row

Wednesday, June 14th, 2017

Recent figures have shown that house prices in the UK fell again in May this year, making it the third month in a row which has seen prices go down. Nationwide, the UK’s biggest building society which carried out the research, stated that this is the first time house prices have fallen in three consecutive months since 2009. Following the drop of 0.3% seen in March and 0.4% in April, May saw prices decrease by 0.2%, making the average house price £208,711. The annual rate of price growth also hit 2.1%, down from 2.6% in April and the slowest pace seen since June 2013.

“It is still early days, but this provides further evidence that the housing market is losing momentum”, said Nationwide’s chief economist Robert Gardner. “Moreover, this may be indicative of a wider slowdown in the household sector, though data continues to send mixed signals in this regard.” The building society also warned that it is too soon to know whether the recent downturn can be considered to be more than a “blip”.

Considering whether the slowdown could be a result of the snap general election being called, Gardner was confident that the two were not linked: “Housing market trends have not traditionally been impacted around the time of general elections. Rightly or wrongly, for most homebuyers elections are not foremost in their minds while buying or selling their home.”

Nationwide have also suggested that house prices will continue to slow, and that inflation rises will put pressure on household budgets, leading to weakened household spending. However, the building society has predicted that house prices will increase by around 2% overall throughout 2017, buoyed by a shortage in the supply of housing across the UK. Whilst this offers some reassurance, this figure is considerably lower than the 4.5% rise seen in 2016.

Why retirement is worrying millennials

Wednesday, June 14th, 2017

A recent study by HSBC has revealed the main financial worries of the ‘millennial’ generation, recognised as those born between 1980 and 1997. As its title suggests, the ‘Future of Retirement’ survey focuses primarily on how millennials feel about how they are preparing for life after work, but also delves into the wider issues around money and modern life which are inherently linked to the subject.

In general, millennials see themselves as less fortunate than the generations which have come before them. Over half (52%) felt that they had seen weaker economic growth than previous generations, whilst 60% said they saw themselves as experiencing the consequences of decisions made by those older than them, including rising national debt and the global financial crisis. In relation to retirement, 65% of respondents are worried that they will run out of money when they retire, whilst 46% were concerned that employer pension schemes would collapse without any payout for their generation.

The average age that millennials begin saving for their retirement is 27, with just 13% admitting to not having begun putting money away for their pension yet. 76% said that curbing their current spending was difficult but necessary to save for later in life, whilst 68% are willing to do so. When it comes to investment, nearly half of those surveyed (48%) said they would go for a risky opportunity which had the potential for greater returns further down the line.

Expanding out to look at the concerns of all those currently working, which includes both Baby Boomers (those born between 1945 and 1965) and Generation X (born between 1966 and 1979), the survey found that only 17% were worried they wouldn’t be financially comfortable in retirement based on their current savings, with a worrying 14% admitting to having not been able to save anything. However, over half (52%) said they felt that due to the constantly changing financial climate, their current retirement plans would not be relevant.

When asked about back-up plans, around two thirds (67%) of working people said they would continue working in some way after they reached their retirement, whilst more than four fifths of people (82%) said they were intending to retire two years later than originally planned in order to give themselves greater financial stability. 41% also said they wouldn’t mind taking on a second job or working for longer to supplement their pension pot.

The key guidance from HSBC’s research is that starting to save early is the best way to ensure you have sufficient savings to support yourself after you’ve retired. Another key message is the importance of seeking advice, with many people now using technology to plan their retirement: almost half of those surveyed (49%) have used the Internet to research their options, 35% have used online retirement calculators and 27% have contacted advisers online. Online savings accounts are also popular, with 41% saying that they are using one to put money away.

Savings, investments & the political climate

Wednesday, June 14th, 2017

Whilst the country takes in the latest developments in the ongoing saga that is contemporary British politics, one question that many will be looking for answers to, is how the result of the general election is likely to affect them financially. It’s inevitable that savings and shares will be impacted upon in some way by Theresa May’s failure to convert her confidence in April into a larger majority in June and the resultant Conservative/DUP deal, as well as the wider ramifications the election outcome might have for the upcoming Brexit negotiations.

Following the election and the slight fall in the value of the pound, shares in many of the largest British companies went up. As companies dealing in dollars and other currencies benefit from a weakened pound, the FTSE 100 initially rose. However, ‘local’ companies dealing in sterling, such as Lloyds Banking Group, housebuilders Crest Nicholson and retailer Next all came out worse off, as did smaller companies linked to the UK economy.

As such, those with diversified pensions and ISA funds are likely to be no worse off than before the election, and doing significantly better than this time twelve months ago. However, it’s worth remembering that the uncertainty and volatility that are likely to be seen in UK politics in the coming days, weeks and months could result in shares and investments shifting further.

Whilst interest rates on both savings and mortgages were at historic lows before the election, capital markets pushed these still further down the day after polling day in order to absorb some of the shock of a result most had not predicted. This is just the latest setback for savers in a period which has seen rates declining consistently since the Bank of England lowered the Bank Rate from 0.5% to 0.25% in August 2016. With little competition between lenders, it’s more likely that rates will fall further than begin to climb any time soon.

The housing market too has been slowing since well before the election, making it a good time for those looking for a great deal on a mortgage to find one – but only if they meet the increasingly fastidious lending methods being used by lenders. The economic instability the country could potentially see in the coming months mean that criteria may tighten further, so those hoping to benefit from a low mortgage rate should do so sooner rather than later in order to avoid missing out.