Triple-dip recession avoided by the UK economy

Whilst the figures, released this month from the Office for National Statistics (ONS), reflected a flat economy, they were better than many expected. The ONS also commented that there were no extraordinary contributing factors, such as the Olympics, to flatter these figures.

They added that the first quarter figure of 2013 had risen by 0.6% compared with the same period in 2012; this is its strongest performance since Q4 of 2011.

The service sector led the increase in productivity, with retail, hotels and restaurants performing well. The energy sector also contributed positively, with increased North Sea oil and gas production. Overall this sector saw growth of 0.6%.

Telecommunications and transport also contributed positively with growth of 1.4%.

On the negative side, construction, with a dip of 2.5%, and manufacturing also saw a decline in output to slightly dent the overall figures.

Given the negative comments made recently by the International Monetary Fund and a downgrading of the UK’s AAA credit rating by another of the agencies, George Osborne, the Chancellor of the Exchequer, said of the ONS announcement: “Today’s figures are an encouraging sign the economy is healing. Despite a tough economic backdrop, we are making progress. The deficit is down by a third, businesses have created over a million and a quarter new jobs, and interest rates are at record lows.

“We all know there are no easy answers to problems built up over many years, and I can’t promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future.”

As a caveat, UK economic output remains 2.6% below its pre-financial crisis level.

FTSE - experiences highest level for years..

Markets: (Data compiled by The Outsourced Marketing Department)

January saw a global recovery in equities, with the FTSE 100 seeing its best level for nearly four-and-a-half years, closing at 6,276.9, up 6.43% since the New Year and now only 4.19% under its long-term trend. The FTSE 250 was more impressive, rising 11.9% to finish at 13,847.1.

The Eurostoxx50 improved by 4.3%, closing at 2,749.27, whilst the FTSE All-World index flirted with its highest level since 2008, we also saw Asian markets improve.

Investor sentiment remained bullish in the UK, USA, China, and even in Germany, where recently the Eurozone crisis had dampened market enthusiasm. With the Euro currency now trading at around $1.37, its highest level since November 2011, sentiment has dramatically improved. Wall Street saw the Dow Jones end the month at 13,860.58, up 5.77% and the S&P 500 reaching a five-year high, with many of the constituent companies reporting better than expected earnings data.

With ultra-low interest rates continuing in the USA, Europe and Japan, fuelling the risk appetite of sophisticated investors, the more cautious players may be encouraged to join the party.

Indeed the Tokyo market saw the Nikkei rise by 7.15% to end January at 11,138.66, and reach a near three-year high. The currencies markets saw UK Sterling at $1.59 against the greenback and lower at €1.17 against the Euro. The Euro itself was worth $1.37 up 3.41% in the month and sitting at a fourteen month high.

Commodities were in demand with the Brent Crude benchmark for oil rising 4% to $115.55 and elsewhere copper rising 1.2%. Gold, however, moved little in the month, finishing at $1,664.63, off 0.67%.

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NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Bank of England to prevent boom and bust…

Enable Independent, Independent Financial Advisors in Bishop’s Stortford were pleased to see that the Bank of England have expressed that they are ready to take aggressive action against UK lenders to protect the UK from a boom and bust economy.

The Financial Policy Committee, who were set up to safeguard the stability of the banking system, published a draft policy covering the powers it will have when it launches in April this year.

The Committee will have the authority to stop banks from issuing large mortgages or commercial property loans to increase their defenses in the good times to absorb losses in an economical downturn.

This type of regulation will be controversial as it increases the cost of mortgages and will make it difficult for would-be buyers to get the funds they need to get on the first run of the ladder.

However the Bank have stated that better regulation will lead to a decline in bad loans and will help prevent the sort of property booms and busts.

There are some indications of the housing market slowly improving. A survey carried out by e.surv, showed that 2012 was the best year for mortgage lending since 2007, and lending to first time buyers was up by 11 per cent.

Shop Price Inflation Slows...

Good news as inflation slowed in September from 1.1% in August, however food inflation remained unchanged at 3.1% in September, according to the British Retail Consortium.

Stephen Robertson, BRC Director General, stated “Falling prices for non-food goods and stable food inflation are slowing overall shop price rises.

“Food inflation remains at a two-year low for the third month running despite inflationary pressures building up in the supply chain from rises in global commodities such as wheat and soya beans.”

“These shop price figures show retailers are holding back much of the impact as they battle it out for every bit of spending available from hard-up customers. Promotions, including multi-buy offers, fuel coupons and price matching are commonplace and helping to keep grocery bills down while non-food prices have now been cheaper than a year ago for eight months in a row as prices of furniture, electricals and clothing are cut to generate sales.”

Latest market news....

Positive sentiment from the eurozone, with Greece receiving the promise of its hoped for bail-out funds, saw the London FTSE100 gain 1.45% to close the month on 5,866.8 and the wider FTSE250 finishing on 12,034.2 for a more modest rise of 0.83%. In mainland Europe, the Eurostoxx 50 likewise gained 2.86% to finish at 2,575.25.

With the American Presidential elections successfully put to bed, with Mr Obama being returned for a second term, he now has to turn his attention to the possible fiscal cliff threatening the USA’s government finances, the Dow Jones therefore marked time, finishing November on 13,025.58, down a modest 0.54%. The Nasdaq faired a little better, closing on 3,010.24 up 1.11%.

The Japanese Nikkei 225 had a strong month, recording a 5.8% gain to close on 9,446.01. As always, the foreign exchanges tracked the global political and fiscal situation carefully with UK sterling closing at US$1.60, little change on the month, whilst against the Euro it finished the month at €1.23, down 1.6%,  reflecting the better sentiment seen regarding the southern European sovereign debt issues. The Euro itself finished the month at US$1.30.

Oil saw little change in November with the Brent Crude benchmark ending at $109.51 up a marginal 0.75%. Gold had a volatile trading month with the precious metal dipping to $1,705.63 at one point, only to bounce back to finish November on $1,742.05, for an eventual monthly gain of 1.9%.

Marekets: (Data compiled by The Outsourced Marketing Department)

Investment Choices

There are several factors to consider when comparing actively and passively managed investment funds but investment charges need to be close to the top.  At Enable our IFA’s can fully explain any charges relating to an investment. Charges are often much higher for actively managed funds than passive funds as there is more work involved. Actively managed funds not only have higher management fees but they also trade more frequently which means more dealing charges. These funds can easily charge twice as much as passive funds even if they don't perform as well or they make a loss.

You might say higher charges would be justified if an actively managed fund outperformed a passively managed one. But this often is not always the case and once charges are taken into consideration, many tracker funds produce better returns than actively managed funds. However, some actively managed funds perform considerably better than the stock market and can offer real added value. Once you've decided which asset class/sector/stock market you want to invest in, picking a passive fund is simple. But actively managed funds add another layer to your investment decisions. You need to look at what funds are in that sector, and then choose which fund/fund manager you think will do best.

There are more actively managed funds than passive funds hence the greater choice but too much choice is not always a good thing.  Why not let our experienced IFA’s at Enable help make some of those decisions a little bit easier.

Credit is no longer so easy...

As a parent another important lesson you can pass on to your family is managing credit.  Enable’s experienced IFA’s know that being able to access and manage credit is vital to financial success.  Understanding how it works can help you help them.

Most lenders go through two main credit reference agencies for information on your financial past – Equifax) and Experian , they compile credit histories from a number of sources, including the electoral roll, county court judgments and how effectively past debts have been paid. Every time a new form of credit is opened it will leave an electronic footprint on your record. The decision to turn borrowers down for credit isn't made be Experian or Equifax but by the lenders, based on their own criteria.

So if you want to be credit worthy these are some of the best things to make sure you have done;

• Get on the electoral roll.

• Don't make too many applications for credit in a rush – and that includes things like mobile phone contracts. Space out applications.

• Show lenders you're a responsible borrower by borrowing and paying it back. It might mean taking a credit card with a very high interest rate, spend small amounts and then keep clearing the balance.

• Do everything in your power to keep up all agreed repayments ask for smaller repayments if you're finding it impossible.

• Joint finance done with someone with a bad rating will affect your rating. If you split, write and tell the debt agencies.

Jobs (Source: The Office for National Statistics)

The latest unemployment rate in the UK continues to throw up anomalies against the poor Gross Domestic Product (GDP) figures recently released for Q2 2012.

Unemployment has continued to fall, confounding many market analysts, with the number of fulltime workers increasing by 102,000 on the previous quarter, up 0.5%. This represents the best figures since April 2009. Part-time workers also increased by 134,000 to a total of 8.12 million; this is the highest figure recorded since records began in 1992.

Overall, the unemployment rate for the three months to July 2012 was 8.1%, which is a reduction of 0.1% amounting to 2.59 million people. The flip side to these figures is that 71.2% of the workforce is currently in employment.

Those unemployed for over one year has increased by 22,000 from the previous quarter to 904,000, the highest figure since the quarter ending March 1996.

The youth jobs market (those between 16-24 years old) improved slightly in the three months to July 2012 with an additional 58,000 finding employment, but there remained 1.02 million of those unemployed representing 21.6%.

Those unemployed claiming Job Seekers Allowance also fell by 15,000 to 1.57 million between July and August 2012.

The disparity seen between the private and public sectors continues with private sector employment increasing by 471,000 from March 2012 to 23.9 million, whilst the public sector saw a decline of 235,000 people to 5.66 million.

Redundancies fell by 13,000 from the quarter ending April 2012 and down 20,000 from a year earlier. Therefore the redundancy rate was 5.7 per 1,000 employees, again down 0.5 on the previous quarter and 0.8 on the year earlier.

Total pay saw an increase of 1.5% with average total pay (including bonuses) being £471 per week. Average regular pay (excluding bonuses) was recorded at £443 per week.

So in brief…

Unemployment continues to fall

All eyes still on the Eurozone...

Inflation dipped in August

Inflation dipped in August continuing a positive trend, UK price rises were trimmed in August, compared to the previous month, according to the Office for National Statistics (ONS).

Both the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) – which also includes housing costs – measures fell during the month, with the CPI change dipping to 2.5% in August, against 2.6% recorded in the previous month and the RPI movement showing a drop to 2.9% from 3.2% in July.

The ONS stated that factors behind the fall in the CPI were smaller rises in gas prices and furniture costs. Whilst reporting this data, the ONS also said that they will be consulting on possible changes to their RPI calculation methods between the 8th of October and the 30th of November this year.

Given that CPI inflation peaked at 5.2% in September 2011, these new figures are good news for consumers, the Bank of England, who have been set a target of 2%, and the Government. The expected drop in demand in the UK economy should result in inflation continuing to decline towards this 2% target in the short term.

This said, the ONS did warn that there remain a few factors that may put upward pressure on prices. Mr Richard Campbell, an ONS director, was quoted as saying:

“Some of the utility companies are talking about price increases in the next few months, while there have been reports of poor harvests in many parts of the world, which could possibly have an impact on food prices.

“Finally, if the oil price continues to go up, we expect that to feed through to petrol and diesel prices.”

With the UK economy having contracted over the past three quarters and the Bank of England’s additional Quantitative Easing (QE) programme worrying analysts that it would stoke inflationary pressure, these lower CPI and RPI figures eased their concerns in this regard.

Our monthly economic review is intended to provide background to recent developments in investment markets as well as to give an indication of how some key issues could impact in the future.

It is not intended that individual investment decisions should be taken based on this information; we are always ready to discuss your individual requirements.

So how much does it cost to bring up a child?

Apparently the current average cost of raising a child till their 21st birthday no stands at more than £218, 000.  Try doubling let alone trebling that sum and it can seem a bit daunting.  Independent Financial Advisors Enable are experts in helping you make the most of your earnings and savings, putting in place financial plans to help you cope with the stresses and strains of family life.

It would seem childcare and education are the biggest cost to parents according to LV’s Cost Of a Child Survey.  Childcare coming in at £71780 and education at £62 099. IFA's like Enable can help you plan for managing these costs but one of the first things you should do when starting a family is make sure you are receiving any of the benefits you are entitled to.  Child benefit for example is for parents with dependents up to 16 or until the age of 20 if in fulltime education. It is about £20 a week for your fist and slightly less for subsequent children, although every child will be entitled to some benefit. But remember families earning more than £50,000 p.a will not be entitled to the full amount and those on £60,000 or more will stop getting any child benefit in 2013.

Whether or not your family is entitled to child benefit Enable's Independent Financial Advisors can try and help you get maximum benefit from you finances for your family.

Trusts and IHT

Inheritance Tax (IHT) is commonly understood as the tax paid on an estate when an individual dies. However, it can also apply to certain lifetime transfers and there is a separate regime that applies to assets held in certain types of trust.

A trust is a legal arrangement where one or more “trustees” are made legally responsible for holding assets (for example land, money, buildings, or other investments) that have been placed (“settled”) in trust for the benefit of one or more “beneficiaries”.

There are three main occasions when IHT may be charged on arrangements involving most types of trust: when an individual settles assets in a trust, an IHT charge, commonly referred to as an ’entry charge’, is levied. Tax is charged at a rate of 20% on the chargeable value of the assets transferred into trust that is in excess of the IHT nil-rate band, when a trust reaches each ten-year anniversary from when it was set up a periodic charge is levied. This can be up to 6% of the chargeable value of the property in the trust, and when assets are transferred out of a trust, or the trust comes to an end an exit charge effectively ensures that a proportionate IHT charge is imposed on assets that would not be subject to tax at the next periodic charge.

Sorting out some of the implications of trusts and IHT can be confusing and complicated which is why you might want to turn to experienced IFAs like those at Enable of Bishops Stortford.

Asset management in the news

Cambridgeshire IFA’s Enable can help with all forms of asset management, sometimes it is interesting to note what other individuals and institutions are up to. Over the summer, the London Borough of Camden invested 5% of its assets, or about £40-£50m, with BlueCrest Capital Management in a fund-of-hedge-funds. BlueCrest’s brief is to invest the money in at least four underlying hedge funds, and outperform cash with a lower level of volatility than the stockmarket. Camden is now also considering investing another £50m with Brevan Howard, which came a “close second” to BlueCrest in a recent hedge-funds tender exercise, according to council documents. 

Also over the summer, seven local authorities – the county councils of Norfolk, Buckinghamshire, Cambridgeshire, Derbyshire, Lincolnshire and Northamptonshire, along with the London Borough of Croydon – announced the results of their first-ever joint tender for actuarial firms.  They added five firms – Aon Hewitt, Barnett Waddingham, Hymans Robertson, KPMG and Mercer – to a permanent shortlist, from which the participating pension funds will now pick candidates any time they want to re-tender their actuarial services contracts.

The seven funds, which oversee pensions assets of about £11bn between them, are shortly to announce further joint-searches for investment consultants and for custodian banks. However, according to Nicola Marks, head of the £2.2bn Norfolk fund, it is unlikely the process will ever be used for investment managers, as there are too many companies and too much variability in the services they offer.

Independent Financial Advice at a more personal level, can be accessed through Enable’s IFA’s to help you manage your assets most effectively.

Holding the faith... LIBOR

Along with the rest of the financial world Enables Independent Financial Advisors have been shocked but the revelations of attempts to manipulate LIBOR and other rates is truly shocking. The deeper reason for concern is not just because for it’s effect on financial contracts ranging from mortgages to derivatives but the capital markets require trust if they are to work well. If you cannot trust the intermediaries who make up those markets to operate with integrity, that has a corrosive effect on the whole system.

Investment managers need well-functioning markets if they are to be able to invest their clients' money to deliver the best possible returns and that requires high standards from the intermediaries, in particular the investment banks. This episode - and no doubt the revelations that will continue to unravel as the enquiries proceed – suggest  that those standards have not been met. Investment managers, who are key users of the markets, have reacted to these events with concern and anger. Many are asking whether their clients have lost out as a result, but at this stage it is very hard to say.

Until there is a fuller picture of what other banks were doing it is impossible to say whether the result was a LIBOR rate that was different from what it should have been. And even then tracking through to establish what, if any, the effect on individual portfolios would have been - via the closing of derivative positions, for example - would be mind-bendingly complex.

Getting IFA on your pensions works...

A recent report from Unbiased and Standard Life shows that taking independent financial advice could provide a retirement income boost of more than £2,780 a year on average as much as £232 a month. Consumers who have taken pension advice contribute over one third more to their pension pots than those who have not and those who have received independent financial advice are financially better protected than consumers who have not. Enable’s IFAs know that they can help people make the most of their pension.

The report also demonstrates that the current average pension pot for consumers who have been advised on their retirement planning is £74,554.30, double that of those not seeking advice (£37,277.10) -those who have taken advice put nearly a third more a month (£167 v £108) into their pension plan. On average those who had not taken advice put, 9% of their total salary away, compared to the advised group who think people should be aiming for 11.4%.

Karen Barrett, chief executive of unbiased, stressed the importance of relaying the value of advice to customers: "It's vital to that they know that when people are planning their finances, they should consider taking independent financial advice. Our joint report shows that those who have taken advice are far better positioned for retirement than those who haven't. Consumers are currently faced with delayed retirement ages and rising life expectancies - we are an ageing population and we need to be putting the right preparations in place for this."

Making your pension tax efficient

At Enable our independent Financial Advisors aim to help you make the most of your savings. Saving into a pension is the most tax-efficient method of putting money aside for retirement. There are three main reasons that make pensions tax efficient:

The first being investments in a pension are fully protected from potential capital gains tax charges and there is no additional income tax to pay on dividends or interest, secondly from the age of 55, an individual can normally take up to 25% of their pension fund as a tax-free lump sum, and thirdly tax relief is available on contributions at an individual's marginal rate of tax up to 100% of UK earnings or £50,000 (whatever amount is lower).

The tax efficient of a pension from a contributions perspective of course depends on an individual's personal circumstances. The basic rule is that individuals can receive tax relief at their marginal rate of income tax on contributions up to 100% of their earnings or £50,000. It is however possible to contribute in excess of the £50,000 annual allowance by using carry forward rules. The rules allow individuals to carry forward any unused annual allowance from the three previous tax years. This means some individuals could contribute up to £200,000 in the current tax year assuming they have the earnings to support it, importantly; contributions cannot exceed 100% of earnings in the year in which the contribution is made. Enable’s IFA’s can help you with the detail.

How to build your pension pot....

Less than half of us in the UK are saving enough to meet expectations for income later in life, according to data produced by Scottish Widows. Independent Financial Advisors like those at Enable can help you look at your overall financial situation and decide what you can do to prepare for a good retirement.

UK pension savers are putting less into their pension than ever before, with fewer than half saving enough to meet their income expectations. According to the Scottish Widows report, only 46 per cent of savers are putting enough away for when they retire.

The drop in savings spans all age groups. Out of 5,200 UK adults, 22 per cent have put nothing aside for later life. In contrast, people’s expectations for earnings in retirement have increased from wanting an average of £24,300 in 2011 to £24,500 this year. Such low savings figures suggest the average saver retiring at 65 would receive just over half the amount they feel they need.

The total pot for an average saver is around £150,000 in today’s terms, which would only provide an annual pension of £5,700. With the addition of the state pension this would generate a yearly income of approximately £13,000. which falls drastically short of the £24,500 annual income people are looking for To match expectations, the report suggests an average saver needs to save an additional £4,500 a year or £375 per month to plug fill the gap. At Enable our IFA’s can help you look at your pension provision.

European Banks...

A total of 106 structured products made available to advisers since the start of 2011 have a Eurozone bank as a counter party, Investment Adviser has recently revealed. The figure represents 14 per cent of the total of 750 structured products issued to advisers and sold to clients over the period.

As Spain recently became the latest Eurozone state to see a group of its banks have their credit ratings cut, with Moody’s downgrading 16 of the nation’s lenders including ‘big three’ giants Santander, BBVA and La Caixa may of us may have been wondering what would happen if a Eurozone bank was to collapse.  It’s true the capital held in structured products that used the bank as a counter party could be at risk although the European Central Bank is continuing to take steps to ensure the stability of the Eurozone.

Data from StructuredProductReview.com, which lists all structured products available through UK advisers, shows that 62 products launched since the start of 2011 are backed or partly backed by the UK arm of Spanish bank Santander, including 12 through its Abbey National subsidiary. These include 15 products issued by Legal & General, and four issues of Aviva Investors’ Defined Growth Plan, which include Abbey National among six counterparties.

StructuredProductReview.com founder Ian Lowes said: “Advisers should be very aware of counterparties in order to diversify - limiting exposure to one counterparty is critical.”

Enable’s IFA’s are able to help you to review your exposure to the Eurozone and would be happy to help you make sure your investments are diversified.

Investment in Green Futures

According to Dr Aled Jones, Director of Anglia Ruskin University’s Global Sustainability Institute in Cambridge. The pensions of many British workers are being put at risk by the City’s over reliance on high carbon investments, “The depth and breadth of our collective financial exposure to high carbon, extractive and environmentally unsustainable investments could become a major problem which affects all of us,” said Dr Jones.  He chairs a working group for the Capital Markets Climate Initiative, a public-private initiative set up by Greg Barker MP, Minister at the UK Department for Energy and Climate Change.

“In both the FTSE 100 and the French CAC 40, two of the largest stock market indices in the EU, specialised oil and gas companies alone make up approximately 20 per cent of market capitalization; “To date investors have considered carbon constraints as something which will occur far in the future, and are therefore not material to asset valuation or portfolio management. This is no longer true.“The European Union Energy Commissioner has suggested that the EU will fix a new and stronger 2030 carbon target – and potentially a new renewable energy target – in the next two years.”

“These imminent policy decisions will impact on the value of all high carbon investments by placing absolute limits to the use of fossil fuels inside the EU and globally. As policy and technology over time reduce returns in high carbon areas while supporting low carbon ones, investing in high carbon sectors could result in stranded assets and poor returns.”

Climate change skeptic or not Enable IFA’s can review your investment exposure to high carbon areas.

Looking into Investment Trusts...

With the planned RDR changes just around the corner, investments trusts could see a 225% uplift in recommendations from IFAs once the new legislation is introduced, according to a recent survey from J.P. Morgan Asset Management.

The study, found that over a third of IFAs (36%) are likely to recommend investment trusts next year, an increase of 225% when compared to the 16% of IFAs who currently already recommend the closed-ended products to investors.

It is the broad spectrum of investment choice that is cited as the main reason IFAs would recommend investment trusts, with 49% of those who either already recommend the vehicle, or who are likely to saying this is the attractive element. Similarly, lower overall costs (33%) and a proven record which has resulted in strong, long term performance (28%) were the second and third biggest reasons for IFAs to recommend investment trusts to their clients.

David Barron, Head of Investment Trusts at J.P. Morgan Asset Management, said:
"Investment trusts present new opportunities as they evolve and develop with the markets, and offer a wide choice to investors; from generalist trusts providing a broadly diversified portfolio to highly specialist trusts that can be used to target very specific areas of investment. Additionally, their structure can be more suitable than other investment vehicles for both new and more established areas of investment."

If you want to explore whether Investments Trusts would work for your portfolio Enables IFA’s in Bishop's Stortford can talk you through your options.

Banking on Banks

With recent downgrading of some European banks in is hardly surprising that like technology shares after the TMT bubble burst in 2000, financial stocks are perceived as toxic.

While the technology sector suffered from a perception of overvaluation and irrelevance, among other issues,  harder to remember in the wake of the Facebook floatation, the financial sector has to contend with other problems; higher capital and liquidity requirements, litigation, an anemic economic recovery, a sovereign debt crisis and so on.

It has, maybe been an easy decision for asset allocators to apportion less to the sector than their performance benchmarks. Surveys show that investors remain very underweight in the sector, even with the sharp rally in share prices in recent weeks.

We have to remember however that an investment in financials is not automatically an investment in European banks. European banks represent just 16.8 per cent of the MSCI World Financials index, and that includes the likes of HSBC Holdings and Standard Chartered. If you look at just Eurozone banks  this falls to 6.3 per cent. At best, the rest of the financial sector has suffered collateral damage, and this is where the opportunities lie. The financial sector is not just banks and even more so, not just European banks.

At Enable our Independent Financial Advisors know that the way to mange your wealth is not just to keep calm and carry on but to keep the bigger picture in mind and spread your assets. Enable’s IFA’s can talk you through the options.