comet_logo_wb

(01252) 626200    contact@cometwealth.uk

Menu
comet_logo_wb

(01252) 626200   
 contact@cometwealth.uk

Menu

Newsletter – July 2017

inflation

Inflation rises – Mr Carney prepares to write a letter

The latest inflation numbers show prices rising at their fastest rate for nearly four years.

InflationThe May inflation data came as a surprise to many pundits. The expectation had been for inflation, as measured by the Consumer Prices Index (CPI), to remain at April’s level of 2.7%. Instead, National Statistics revealed that annual inflation had reached 2.9% (3.7% on the Retail Prices Index yardstick).

The last time inflation was at this level was June 2013, as the graph shows. Since then it has taken a rollercoaster ride to around zero for much of 2015, only to surge upwards in the past year: in May 2016 CPI inflation was just 0.3%.

At 2.9%, inflation is already above where the Bank of England had been expecting it to peak later this year. If the rate adds another 0.2% next month, then Mark Carney, the Bank’s Governor, will have to write a letter to the Chancellor explaining why the inflation target has been missed by more than 1%. It’s already clear what he would say from statements issued recently by the Bank: blame the fall in sterling since the Brexit vote.

The Bank sees little respite in the short term. In the press release issued in June alongside its interest rate decision, the Bank said inflation “is likely to remain above the target for an extended period as sterling’s depreciation continues to feed through into the prices of consumer goods and services”.

With many deposit accounts paying interest rates of under 1% (before tax), the news on inflation is a wake-up call if you’re holding more cash than you need to. A year ago money on deposit was just about keeping pace with price increases, whereas now it’s losing buying power at the rate of about 2% a year. To discuss your options in the renewed battle against inflation, please talk to us.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

interest rate rise

Hopes raised for an interest rate rise?

Last month saw the first suggestions that interest rates could increase soon. 

Interest Rate Rise
Source: The Federal Reserve

In June, the US central bank, the Federal Reserve, increased short term interest rates for the second time this year and the fourth time since December 2015. The 0.25% increase to 1.00% − 1.25% had been well signalled by Fed officials, so there was no surprise. As seems to be the case these days, the focus was more on whether the next rate rise was still three months away or might be deferred.

The day after the US interest rate decision it was the turn for the UK central bank, the Bank of England, to make its annoucement. This was universally expected to be another “no change”, leaving base rate at the 0.25% fixed amidst post-referendum concerns last August. The rate did remain unmoved, but there was nevertheless a major surprise: three out of the eight people charged with setting the rate voted for an increase. According to Reuters, this was the nearest the Bank has come to raising interest rates since 2007.

Not so fast

Does that mean the Bank’s next meeting might see the first rise in interest rates in a decade? The answer is probably no. One of the trio of rate risers will have left the Monetary Policy Committee by the time of the next meeting. Her replacement is thought to be less anxious to raise rates. A new deputy governor is also due to be appointed, bringing the Committee up to its normal quota of nine. The balance of the Committee is thus set to change.

Despite some apparent differences between the Bank’s governor, Mark Carney, and its chief economist, Andy Haldane, most experts still do not see the first base rate increase happening until 2018. That is good news if you have a variable rate mortgage, but bad news if you have a deposit account or cash ISA.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

MSCI opens to China

MSCI opens to China, allowing it to become an emerging market

China-listed shares are finally to be included in the leading emerging markets index (MSCI Emerging Markets Index).     

As has been highlighted in previous investment articles, China has the world’s second largest equity market. But at present shares listed on the Chinese stock exchanges don’t figure in the MSCI Emerging Markets Index. The MSCI index is the most important equity index for emerging markets, with an estimated $1,600 billion of funds using it as a benchmark. While the index already has a 28% China weighting, this relates to Chinese companies listed on stock exchanges outside China, notably Hong Kong and in the United States.

For each of the last three years, MSCI has reviewed whether conditions in the Chinese stock markets were appropriate to warrant including shares listed on them in the emerging markets index. In 2014, 2015 and 2016 the answer was no. Various technical reasons were given and each time the Chinese authorities made adjustments in the hope that next year MSCI would change its mind. Last month, the answer finally switched to yes.

Look out for May 2018

The change will not happen overnight: adding such a large market to an index in a single move would be too disruptive. Instead, MSCI has set out a gradual approach. In May next year, MSCI will add shares in the largest 222 listed Chinese companies to its index, with an initial 5% weighting. The weighting is expected to rise over time until it reaches the full 100%, at which point Chinese-listed shares will represent about 15% of the MSCI Emerging Markets Index and total Chinese content, including the existing non-China listings, will approach 45%. Other smaller Chinese listed companies may also be added in the future, further raising the Chinese exposure of the index.

MSCI’s decision has been widely seen as a coming of age for investment in China and, on some estimates, could produce $500 billion of inflows over the next five to ten years.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.  

No summer Budget

No summer Budget, but…

The general election left the future of many spring Budget announcements up in the air, but that situation may soon change.

When Theresa May announced her snap election in April, it threw a major spanner in the previous month’s Budget. There was no time to pass the 776 pages of Finance Bill before parliament shut down. The result was that about 80% of the Bill was removed and its uncontroversial residue passed through parliament in a few days. At the time it was anticipated that following the election the Chancellor – not necessarily Mr Hammond – would reveal a Summer Budget, just as his predecessor did in 2015. The second Budget of the year was expected to reinstate the lost measures and add a few more that were best left until after the polls closed.

It did not quite work out that way, as we all know. Mr Hammond has remained in place at 11 Downing Street and in June told Andrew Marr “…there’s not going to be a sort of summer Budget or anything like that, there will be a regular Budget in November as we had always planned…”. Shortly after that appearance, the background notes to the Queen’s Speech revealed that there would indeed be a Summer Finance Bill, even if there was no Budget.

A tight timetable

The new Bill will incorporate “a range of tax measures including those to tackle avoidance”, but precisely what those measures will be or when the Bill will emerge is unclear. The Treasury has a record of stretching seasonal limits when it comes to publications and will not be helped by the parliamentary timetable, which arrives at the summer recess on 20 July. Parliament resumes on 5 September, but only for nine days before the conference recess, which runs until 8 October.

One planned-and-abandoned/deferred measure which could be relevant to you is the reduction in the money purchase annual allowance. This generally operates when pension contributions are being made at the same time as benefits are (or have been) being drawn. If you think this might affect you, it is vital you check the current situation with us before taking any action.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Inheritance tax

,

Inheritance tax: When is £1m NOT £1m?

From April 2017, a new Inheritance Tax (IHT) nil-rate band is available in addition to an individual’s own nil-rate band. When it was announced in 2015, media headlines suggested that everyone could leave a tax-free legacy of £1m, but the changes will be introduced over the next few years, and don’t apply in every case. 

The new Residence Nil Rate Band (RNRB) will apply if you want to pass your main residence to a child (including an adopted or fostered child) or grandchild. Only direct descendants can benefit, and that doesn’t include nieces and nephews. So not everyone will be able to rely on the RNRB for IHT planning purposes.

The allowance is introduced in stages over four years, with a limit of £100,000 from April 2017, rising to £175,000 per person in 2020. This is in addition to the individual allowance for IHT which remains at £325,000.

How the RNRB applies 

Once fully implemented, each parent will be able to leave £500,000 in assets that include a ‘family home’ component of at least £175,000. It can be passed from one partner to another on death, so when the first partner dies, if their entire allowance goes to their surviving partner, then they would have an allowance of £1 million. Where a property is worth over £2 million, the family home allowance (but not the individual allowance of £325,000) reduces by £1 for every £2 of value above £2 million.

Planning for the future

It makes sense to review the terms of your Will. The RNRB may be lost if the main residence is placed into a Discretionary Will Trust for the benefit of children or grandchildren. The rules surrounding the operation of the RNRB and IHT planning are complex, so you should seek professional advice.

Tax treatment depends on individual circumstances. Tax treatment, rates and allowances are subject to change.

,

As identity fraud hits record levels survey reveals that people are still not protecting themselves

Action Fraud has launched an identity fraud campaign with the City of London Police, Cifas and Equifax, asking members of the public to consider how careful they are with their personal and financial details. A recent YouGov Survey commissioned by Equifax found that the UK population are failing to take basic steps like protecting passwords or installing anti-virus software to protect their identities from criminals. 

Identity fraud has been growing steadily over the past 10 years according to the 2016 Annual Fraud Indicator and it is estimated that the cost of identity fraud to the UK is £5.4billion. Figures recorded by Cifas show that identity fraud now represents over half of all fraud members, with 9 out of 10 perpetrated online. In 2016, 172,919 people reported identity fraud to Cifas.

The recent survey commissioned by Equifax has helped to reveal some of the public’s attitudes towards protecting their identity.

How to protect yourself from identity fraud:

  • Set your privacy settings across all the social media channels you use. And just think twice before you share details – in particular your full date of birth, your address, contacts details – all this information can be useful to fraudsters!
  • Password protect your devices. Keep your passwords complex by picking three random words, such as roverducklemon and add or split them with symbols, numbers and capitals: R0v3rDuckLemon!
  • Install anti-virus software on your laptop and any other personal devices and then keep it up to date. MoneySavingExpert have a recommended list of the best free anti-virus software: www.moneysavingexpert.com/shopping/free-anti-virus-software
  • Take care on public wi-fi – fraudsters hack them or mimic them. If you’re using one, avoid accessing sensitive apps such as mobile banking.
  • Download updates to your software when your device prompts you – they often add enhanced security features.

What to do if you’re a victim:

  • ACT FAST if you think you have been a victim of identity fraud.
  • If you receive any mail that seems suspicious or implies you have an account with the sender when you don’t, do not ignore it.
  • Get a copy of your credit report as it is one of the first places you can spot if someone is misusing your personal information – before you suffer financial loss. Review every entry on your credit report and if you see an account or even a credit search from a company that you do not recognise, notify the credit reference agency. They all offer a free service to victims of fraud.
  • Individuals or businesses who have fallen victim to identity fraud should report to www.actionfraud.police.uk/report_fraud
  • If you have information about those committing identity crime please tell independent charity Crimestoppers anonymously online or call on 0800 555 111.

,

Investment round up – 2017 half-year report

The first six months of 2017 have presented investors with an interesting half year. 

Think about the first six months of 2017 in the UK. There were several serious terrorist attacks, Article 50 was triggered to start the formal Brexit process, the Budget less than perfectly executed and, to round matters off, a snap election was called which delivered no overall majority to the winners. A challenging half year, to put it mildly. So, what happened to the UK stock market over the period?

As the table shows, the answer in terms of the Footsie index, was a rise of just under 2½%. That number hides a rollercoaster ride with three distinct cycles. For all the movement, by the end of June the index was at much the same level as it was in mid-January. It is a reminder that at times short term “noise” in investment markets can be so deafening that what has happened over the longer term gets drowned out.

There is another lesson from the table worth noting. Although the two US indices, the Dow Jones and S&P 500, both show returns of around 8%, you would have been better off with European shares, as represented by the Euro Stoxx 50 index. The reason is simple: in the first half of 2017 the dollar fell by about 5% against the pound, while the euro rose nearly 3% against the pound. When looking at indices, never forget the currency.

Index 2017 Change to 30 June
FTSE 100 +2.4%
FTSE All-Share +3.3%
Dow Jones Industrial +8.0%
Standard & Poor’s 500  +8.2%
Nikkei 225 -1.1%
Euro Stoxx 50 (d) + 4.6%
Shanghai Composite +2.9%
MSCI Emerging Markets (£) +11.5%

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Secret Link