WeekWatch

Any UK investors hoping for a big Spring Statement giveaway from Chancellor Rishi Sunak might have been left disappointed, despite inflation continuing to climb.

On Wednesday, the Office for National Statistics revealed UK CPI inflation hit 6.2% in February, a 30-year high. Expectations are for further price rises over the coming months, as soaring energy prices and persistent supply chain disruptions continue to bite.

The impact of the inflation data on UK markets was mixed. The FTSE 250, which is highly exposed to the domestic economy, fell by 1% by the end of the week. By contrast, the FTSE 100, whose companies generate the bulk of their profits overseas, rose by 1.1% in the same period.

The Chancellor did make several concessions to help ease the ongoing cost of living crisis. However, it is debatable whether these will be enough to combat rising inflation, and have a genuine impact on the livelihoods of those most impacted by rising prices.

“Sunak met low expectations in his Spring Statement, with a 5p cut to fuel duty, removal of 5% VAT on solar panels, and a hike in the lowest National Insurance threshold,” commented BlackRock. “With the cost-of-living front and centre in most national political debates at the moment, this generally didn’t deliver on cross-party calls to soften the blow – with UK inflation now at 6.2% YoY and real household disposable income expected to contract by the greatest amount since the 1950s.”

One of the big announcements on the day was that the basic rate of income tax would fall to 19% in 2024/25. According to Paul Dales, Chief UK Economist at Capital Economics: “this still leaves households having to absorb about a £20bn hit to their real disposable incomes from rising food, petrol and utilities prices by the end of 2023.”

Dales noted the chancellor could have potentially gone further in helping ease the increasing cost of living but noted: “he appears to be holding some cash back until closer to the 2024 election for political reasons.”

Last year, the Chancellor announced that many tax allowances and bands would be frozen until 2026. Given rising inflation and rising wages, this decision may yield more tax for the government than originally thought. In March 2021, the Office for Budget Responsibility projected that the personal allowance and higher rate tax threshold freezes would yield £8.2bn a year by 2025/26. Last week the Institute for Fiscal Studies calculated that on the latest forecasts that figure could be as much as £21bn a year.

Outside of the UK, the tragic events in Ukraine continued. Some fear the conflict may trigger a global recession, but Felipe Villarroel, fund manager at TwentyFour Asset Management, believes these concerns could be overblown. “Under the assumption that this conflict does not escalate into a direct confrontation between Russia and NATO, and that peace is eventually achieved (with commodity prices returning to some sort of normality even if this is higher than pre-war), we do not believe the world is headed for recession.”

Overall, the S&P 500 continued its recent recovery, rising 1.8% over the week. Meanwhile in Europe, the MSCI Europe ex. UK index retreated by -1.0% with the war in Ukraine continuing to weigh on investor sentiment.

Gone are the days when everyone knew what their retirement would look like. Greater pension freedoms and the abolition of the compulsory retirement age are just a couple of factors prospective retirees have to contend with.

The upside is that this has given us more flexibility where our long-term plans are concerned. For example, you might want to retire early, start a business, travel, or give everything to your children.

The downside, however, is that such flexibility can lead to worries along the way. With this freedom of choice comes greater responsibility for the financial planning of your later life.

This is where the value of professional financial advice comes into its own.

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Our response to the immediate crisis in Ukraine has been unwavering. But we must be equally bold in response to the deeper, and more fundamental challenge Putin poses to our values. We must show the world that freedom and democracy remain the best route to peace, prosperity, and happiness.

Chancellor Rishi Sunak discusses Britain’s response to Russian actions in Ukraine during his Spring Statement.

BlackRock and TwentyFour Asset Management are fund managers for St. James’s Place.