We want to take a look at the mini budget impact. Firstly, we would like to start by paying tribute to Queen Elizabeth II who sadly passed away this month. Regardless of any political view, Her Majesty was a bastion of stability and “Team UK’s” number 1 fan. The dedication and service shown to everything and everyone in Her kingdom will be sadly missed, a true inspiration to all.
Since Queen Elizabeth’s sad passing, it would appear that her death ushered in a period of yet more uncertainty, especially when it comes to markets and investments.
Government Mini Budget
Just when we thought we had seen it all – including Brexit, a global pandemic, a land war in Europe and rising inflation – the new government delivered its “mini-budget”. No matter where you sit in the economy the changes announced will certainly affect you in one way or another. Here is a brief summary:
- The government has scrapped the planned rise in corporation tax.
- The government has cut the basic rate of income tax from 20% to 19% and the 45% top rate has been abolished.
- The government has reversed the national insurance rise (1.25% for both employers and employees since April 2022). What would have been called the “Health and social care levy”.
- The government has removed stamp duty for properties under £250,000 and £425,000 if a first-time buyer.
The aim of these tax cuts is simple. Companies and individuals keep more of their money.
In theory, this should encourage investment and help ease pressure from inflation and the energy crisis.
However, markets have not responded positively, at least in the short term.
Market reaction
At the time of writing, sterling – the way global markets value our currency – has fallen. This increases the cost of goods imported from other countries.
As a result, inflation can rise as consumers pay more for the same goods.
Share-based investments continue to experience short-term volatility. However, what’s particularly unusual is the pressure on assets normally seen as “safe havens”.
This includes government borrowing and corporate lending.
Our thoughts
As we continue to advise, we and the investment managers we work with are investors and NOT day-traders. We invest for the long term.
While market movements can feel uncomfortable, it is vital that we don’t overreact.
All our investments are structurally diversified, meaning no client will be too exposed to any specific risk. We will never advocate having large amounts of eggs in any one basket! Here are how some risks are reduced in portfolios:
- Asset class: Broadly investing across many asset classes including shares, gilts, bonds and property for example.
- Geography: Investing across different regions including UK, USA, Europe and Japan for example.
- Currency: By investing in other currencies this will mitigate for example the pressure on sterling that has been recently seen.
- Sectors: Investing across an economy, for example owning supermarkets, car manufacturers, banks and oil companies.
Remember, things will always change. While periods like this can feel uncomfortable, it’s important to retain perspective.
All investments are made with the long term in mind, and decisions are designed to support long-term outcomes.
Assets also provide income – such as dividends, rent, or interest. Reinvesting this income plays a key role in long-term growth.
Our philosophy has ALWAYS been shown to be correct over the long term, however, as always if you ever wish to discuss your personal situation don’t hesitate to get in touch at any time!
If you’d like to talk through how current market conditions may affect your own situation, we’re always here for a conversation – Get in touch.
You may also be interested to read our article about “Safe havens” performing badly.