Decisions, Decisions.

I was thinking about what would be an exciting subject for our blog and suddenly the clouds parted…

The famous quote “If you fail to plan, you are planning to fail!” came to mind and these wise words are as true today as they were many years ago.

We are all inundated with so much “noise” nowadays, that it’s sometimes difficult to see the wood from the trees. Geopolitical tensions are rife, politicians are vying for our support (offering us promises that they may not be able to keep), interest rates remain stubbornly low etc.

Clients often ask us questions such as; “should I be gifting funds or setting them aside to cover the costs of Care”, “are markets too high or too low?”, “do I need to worry about Inheritance Tax?”

As financial planners, it’s important for us to be aware of this “noise”, but what is really important is our clients’ objectives (or plan). We know only too well that each of our clients’ circumstances are different. Some people are financially secure, but scared. Some are blinkered by the riches that certain assets have produced for their parents, without consideration that that may not be suitable for them. Many are just too confused by everything and end up doing nothing.

With improved access via the internet, there are some that look after their finances themselves (DIY financial planning), but in the same way as the gambler only talks about the BIG WIN, the pitfalls that lurk around the corner for this approach can be seriously painful.

We don’t have a crystal ball but we work hard to understand our clients’ future plans so short term changes would not blow them too far off track.

Frazer Wilson
Senior Consultant

Telephone: +44 (0)20 7893 3456
getintouch [at] broadstoneltd.co.uk

 

Where blossomed many an incense-bearing tree

Indulge me, but for those who saw my last post, the heading will make sense.  As a follow up to my garden related synopsis of the UK economy, Tuesday saw that the inflation figure for the UK has fallen below 2%. This is interesting as it is the first time that it has dropped below the Bank of England's target for inflation for four years. Secondly, it adds more credence to the view that interest rates are not going to rise any time soon in the UK, despite the pick up in GDP and the unemployment rate dropping close to the 7% mark. 

The latter, you will remember, was the rate at which the Bank of England would start to even consider interest rate rises.  Despite the media's best attempts to whip up fear about interest rate hikes on the way,  this was never the trigger that the Bank of England would have used to increase rates.

As I mentioned in January, it really does seem that interest rate rises are still some way off, as at least for now, the UK enjoys GDP growth and low inflation. 

 

 

Matthew Phillips

Managing Director

Telephone: +44 (0)20 7893 3456
Email: getintouch [@] broadstoneltd.co.uk

And there were gardens bright with sinuous rills

Over the last couple of days two statistics have been reported that we really should take note of.  Firstly, unemployment in the UK dropped to 7.1%. Quite apart from the fact that this is good news for everyone in work and seeking work, it is important because it is a another step closer to the 7% unemployment rate that Mark Carney, Governor of the Bank of England, has said would be one of the preconditions for an interest rate rise.  Secondly, the Government has published its findings that over the last year, take home pay has risen in the UK.  Finally today we have seen that growth in the UK is at its highest since 2007, with an annual growth rate of 1.9%.

 

 

More people in work, and people getting paid more is the rich soil in which the seed of inflation grows. The strimmer of inflation, to stretch my analogy further, is interest rates.  So we seem to have taken another big step closer to the interest rate rise that we have known is coming for some time.  Higher interest rates are bad for the prices of gilts and corporate bonds, better for savers, and importantly will be of great benefit to defined benefit pension schemes and those purchasing annuities. However, I personally don't think that interest rate rise is coming imminently.  The green shoots of economic recovery have only just started to appear and like the daffs in my garden could be easily snuffed out by an icy blast. In my opinion, growth needs to be bedded in before it is reined in.  Comments from the Bank of England and Vince Cable seem to bear this out with the Governor playing down chances of an interest rate rise yet.   So we might have several months of cheap money, lower unemployment, and economic growth ahead. Everything in the garden seems rosy....

 

Matthew Phillips

Managing Director

Telephone: +44 (0)20 7893 3456
Email: getintouch [at] broadstoneltd.co.uk

Predicting Interest Rates Becomes Interesting

Last week saw the release of the UK’s unemployment figures that saw a fall in the rate of unemployment to 7.6%, a rate faster than was expected. 

Whilst this is to be welcomed there will be a concern that Mark Carney, governor of the Bank of England, recently announced that interest rates will now be linked to unemployment figures and that consideration of a rise in interest rates would not be given until the jobless rate has fallen to 7% or below.  

Today's figures could mean that interest rates will rise faster than expected.

This could be great news for savers who currently struggle to achieve 1.5% before tax on their deposit funds, even if they tie their money up for a year.  If interest rates were to rise, long term savers might want to reconsider the decision for longer-term accounts, since they would not be able to take advantage of any future rises in interest rates until after the expiry of the (new) fixed term.

It is worth noting that the current deposit rates are still less than the recently reduced rate of inflation, which means that the future spending power of money will go effectively backwards.

On the other hand, mortgage borrowers are generally charged a rate much higher than the Bank of England base rate. So, those considering fixed-rate mortgages may well be advised to consider fixing now before any increase in rates.

Any pension savers considering buying annuities may be affected by a rise in interest rates, as annuity rates normally rise when interest rates rise. Whether annuities will continue to rise in the same way we have seen this year is subject to some conjecture. Annuity rates are linked to gilt yields and some commentators are suggesting that the Bank of England would consider exerting pressure to control gilt yields, possibly even by restarting their Quantitative Easing programme. 

Annuity rates are still much lower than they have been historically, which is forcing pension savers to consider other methods of arranging their post-retirement income – for example, income drawdown. And with Financial Planning Week starting on 24 November so there’s never been a better time to think about your finances.

Zane Hunter

Chartered Financial Planner

Private Client Partner

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk