In Germany it’s called “Reise Nach Jerusalem”, a name thought to be inspired by the Crusades. Whether or not that’s true, the game of Musical Chairs to find Boris Johnson’s successor became increasingly bitter last week. By Thursday, there will be just two candidates and one chair remaining.
Tax cut promises have been a dominant theme in the campaign, despite the Office for Budget Responsibility warning that UK debt is on an “unsustainable path” unless spending is tightened and taxes are raised. In an open letter last week, the CBI business group added its concerns, urging the candidates to focus on growth and an overhaul of the tax system over quick cuts. It described the level of inflation pressure on households and businesses as “eye-watering”.
Inflation figures for June will be released this week, as will the latest employment numbers, which should provide strong indicators of whether the Bank of England will speed up interest rate rises. The pressure to do so increased last week as GDP figures for May came in better than expected. Against consensus forecasts of no growth, the UK economy expanded 0.5%, driven by healthcare services and a bounce back in the manufacturing and construction sectors.
However, June is likely to show a large contraction due the additional Platinum Jubilee bank holiday and the disruption to transport services from industrial action. The current heatwave also looks set to dampen activity this month, especially for the retail sector.
The British Retail Consortium reported that retail sales are falling at a rate not seen since the depths of the pandemic, underlining the pressure on households’ finances. Sales in shops and online have dropped for three months in a row, with furniture, home appliances and computing the biggest fallers.
Despite growth concerns, the pressure is on the Bank of England to keep raising interest rates to reduce the risk of higher inflation becoming entrenched. “The next Monetary Policy Committee meeting on 4 August should deliver an increase in interest rates of at least 0.25%,” commented Azad Zangana, Senior European Economist at Schroders. “The argument for a larger rise, however, is strengthening.”
Surging inflation was also the story in the US last week. Inflation in the 12 months to June hit 9.1%, the highest level for more than 40 years, with fuel and food costs the main drivers. The finances of American families are being hit hard, with evidence that people are changing their spending habits and using savings to pay for housing and food.
Whilst downplaying the backward-looking figures, President Biden’s administration will be concerned, with midterm elections looming in November and its popularity falling as inflation has soared.
Markets had already priced-in expectations of a three-quarter point interest rate hike from the Federal Reserve at the end of this month, but the hotter-than-expected inflation figures sent Wall Street lower on Wednesday on fears of a full percentage point rise. However, by the end of the week, news of a surprise gain in retail sales and comments from Fed officials reversed those expectations and US stocks recovered ground.
Last week also saw the euro fall below the dollar for the first time in 20 years. The euro has been weakened by fears that restrictions on energy supplies from Russia will increase the risk of recession, as well as concerns that the European Central Bank has lagged other central banks in raising rates.
A weakening currency will make imports more expensive for eurozone countries, especially goods priced in US dollars such as crude oil, creating higher inflation pressure, which is already running at 8.6%.
Official data released last week confirmed that China, the world’s second largest economy, has been hit hard by recent COVID-19 lockdowns. Activity contracted sharply in the second quarter, with GDP falling 2.6% from the previous quarter. There were some bright spots in the data. Unemployment fell to 3.5% and retail sales outperformed, although many analysts do not expect a quick recovery as the government continues with its strict zero-COVID approach to slowing the spread of the virus.
Ahead of a meeting of G20 finance ministers and central bank governors in Bali, the head of the International Monetary Fund, Kristalina Georgieva, said it would downgrade its expectations of global economic growth this month. She warned that the outlook had “darkened significantly” due to the impact of the war in Ukraine, higher inflation, and the ongoing COVID-19 pandemic, and said that central bank action on interest rates will “need to continue”. The IMF reported that 75 central banks have raised interest rates in the last year, on average, 3.8 times.
The end of the week provided more positive news as Turkey announced that a deal was in sight to end the Ukrainian grain blockade. Russia, Ukraine, Turkey and the United Nations are now due to sign a deal next week.
As the psychological impacts of the pandemic continue, stressors have become more about money than health. But there are many ways of counteracting these effects to protect your financial and mental wellbeing. The root causes of these psychological problems are mounting. COVID-19 brought two years of reduced incomes and stress for many people. A significant number are still recovering, but also now face other stressful situations such as the Ukraine war, raging inflation and volatile stock markets.
It may be time to talk to an advisor.
Harriet Shepherd, Financial Wellbeing Manager at St. James’s Place says: “If you have negative emotions around your finances, it’s time to talk to a professional – whether that’s a debt counsellor, financial planner or other kind of adviser.
“Your adviser can field any of your questions such as: am I still on track for my retirement plan? Should I do anything now, such as cut spending? What should I do if my financial or family situation has changed? How can I stop inflation eroding my savings? No question is too small or stupid.”
The earlier you speak to your advisor the better. A report by the International Longevity Centre found receiving professional advice between 2001 and 2006 boosted wealth by £47,706 in 2014/161. Financial advisers add this value by helping you use the right tax wrappers; avoid scams; get the confidence to save and invest; and tailor your portfolios to match your goals. They can also help you make logical decisions and avoid costly mistakes in uncertain times.Even if you think you have the solution to your problems, confirmation that you’re doing the right thing brings reassurance, which is key to wellbeing. This is why financial advice isn’t simply about numbers on a page. It can help you map out the future you want and significantly improve your financial wellbeing and mental health.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.
1What It’s Worth – Revisiting the Value of Financial Advice, International Longevity Centre, November 2019 based on 2014/2016 calculations. Receiving professional financial advice between 2001 and 2006 resulted in a total boost to wealth (in pensions and financial assets) of £47,706 in 2014/2016.
Despite the short term fluctuations caused by market disruptions, history shows that investing in assets such as equities, bonds and commercial property has proved the best way to grow capital and protect it from inflation over the long term. The chart below is on a cumulative basis:
Source: Bloomberg/financial Express. Data from 1 January 1987 to 31 December 2021. All figures are calculated on a total return basis which includes the reinvestment of income. Equities are represented by the FTSE All Share Index. Bonds are represented by the FTSE Gilts All Stocks Index. Cash is represented by the Bank of England Base Rate. Property is represented by the MSCI UK Monthly Benchmark. lnflation is measured by the Retail Prices Index. Only cash deposited with a bank or building society can provide the security of the capital invested. Please be aware that past performance is not indicative of future performance.
Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. *The MSCI Property index returns are to the end of 2019 as the daily 2020 data is currently unavailable.
Source: London Stock Exchange Group plc and its group undertakings (collectively, the ‘’LSE Group”). © LSE Group 2022. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license.
“This year’s World Population Day falls during a milestone year, when we anticipate the birth of the Earth’s eight billionth inhabitant. This is an occasion to celebrate our diversity, recognize our common humanity, and marvel at advancements in health”
UN Secretary-General António Guterres comments on the UNs prediction that the human population will hit 8 billion on 15 November 2022
Schroders is a fund manager for St. James’s Place.
The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2022. FTSE Russell is a trading name of certain of the LSE Group companies.
“FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.
© S&P Dow Jones LLC 2022; all rights reserved
Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.