Stock Take

Geopolitical worries and mixed economic news across the West presented a challenging environment for investors last week.

In the UK, The Office for National Statistics revealed that monthly GDP grew 0.2% in August, but also revised down its estimate for July’s figure from -0.5% to -0.6%.

July was an especially bad month for the UK economy as a combination of industrial action and unusually rainy weather kept people indoors, slowing activity.

August’s figure was helped by a resilient services sector. The positive figure reduced the chances of a recession, giving markets some confidence.

Reacting to the news, Hetal Mehta, SJP’s Head of Economic Research, said: “The GDP data was broadly in line with what we and others were expecting – some bounce back was likely given the perfect storm of wet weather and strikes pulling GDP down in July. It is clear, however, that the economy remains weak.

“Monthly GDP has trundled sideways since the beginning of 2022 and the full effect of the Bank of England’s rate increases is yet to feed through. Credit conditions have been tightening and some softening in the UK labour market is evident – these will most likely keep the UK economy on a weak footing in the months ahead.”

With the Autumn statement just over a month away, UK Chancellor Jeremy Hunt tempered expectations of tax cuts. Speaking at the IMF he said: “The fiscal position has worsened since the spring, and I will have to take difficult decisions in the Autumn statement.

“The main reason things are more challenging is because interest rate projections for all economies have gone up. The UK is not immune to those changes. We are likely to see an increase in debt interest payments of £20bn-30bn and that’s a huge challenge.”

The next Bank of England meeting to discuss interest rates will be at the start of November, before the Autumn statement. Before then, we will see new labour market and inflation figures, which will also likely have an impact on the Bank’s decision.

In the US, inflation was 3.7% over the 12 months to September, the same rate recorded in August. This was slightly above expectations, partly driven by increasing electricity prices having a greater effect than had been expected.

Core inflation – which doesn’t include volatile items like fuel – edged down 4.3% to 4.1%, was encouraging news for those hoping interest rates won’t increase further. instead, these inflationary figures feed into the ‘higher for longer’ narrative around interest rates, with drops not expected for some time.

Challenging all markets right now is the uncertainty in the Middle East.

Vincent Mortier, Group Chief Investment Officer at Amundi, said: “The impact on markets should be limited as long as the conflict remains local and does not spread. It is marginally positive for the defence and the oil sectors, but slightly negative for some others such as aviation and long-haul travel, given the complications to travel to Israel and flying over the region.

“In the US, it is seen as a catalyst to have the government shutdown risk lifted in order to vote for some additional help to Israel. However, the biggest risk is to oil prices as we think the ongoing relaxation of US sanctions on Iranian oil sales will become harder. At the same time, once the immediate conflict will be under control, Israel could decide that now is the time to attack Iran’s nuclear capabilities – with the possibility of a larger regional conflict erupting – and this could lead to higher oil prices.”

Wealth Check

What is financial wellbeing? It’s about knowing that you can pay the bills, manage your debts, deal with the unexpected and stay on track for your long-term goals. When we feel in control of our money, we tend to be happier, our communities are healthier, businesses are more prosperous and the national economy thrives.

According to the latest research from the Money and Pensions Service (MaPS), a quarter of the UK’s adult population has less than £100 in savings¹.

We have a lifelong relationship with money. That’s why financial wellbeing needs to be at the heart of the conversation. Financial advice has a key role to play in helping people to understand how to manage their money and make informed choices.

When more of us feel financially confident and capable, the healthier the nation will be. Positive changes to products, services and regulations in financial services are already helping to build personal confidence and financial skills in the wider population.

Nearly half of people in the UK (44%) say they would be in fitter shape financially if they were better taught how to manage their budgets and bills, according to a 2022 survey by the Centre for Social Justice².

A large number of children grow up without knowing how to budget or save, while many adults aren’t even confident talking about money to family and friends. The scale of the problem is clear in the 2022 MaPS report. It can be hard to admit that you’re struggling financially, or that you don’t understand the basics, so it’s not surprising as many as four in five of us struggle to talk about money.

Where does a sense of financial wellbeing fit into people’s general wellbeing? Financial wellbeing is about feeling confident and in control. That could mean having the confidence to invest, or the confidence to deal with debt – or somewhere in between.

Money and mental health are closely linked. When worrying about money, people find that their mood, focus and sleep patterns are impacted as stress takes its toll. If you’re already living with a pre-existing mental health condition you may be less able to plan, make decisions or communicate, making it even more difficult to manage money.

The strain of worrying about finances can push those experiencing a mental illness to tip into crisis. A financial adviser can help to guide you through these challenging times, and often talking openly to someone who is one step removed from the situation can be an enormous relief.

Practical, sensitive financial advice can help put you back on track, and back in control.

Sources:

¹Money and Pensions Service, November 2022

²The Centre for Social Justice and Lowell, January 2022 (Poll carried out by Opinium, and based on a sample size of 4,000 people)

In The Picture

Hetal Mehta, SJP’s Head of Economic Research, chats with Ben Inker, Co-Head of Asset Allocation at GMO about the current market, and where he sees opportunities.

https://sjp.getmediamanager.com/video/652d0a33aa38861cb805a673/53c4e5f5150ba09b0f8b4594?mute=false&autoplay=false&downloadable=false&pageurl=https%3A%2F%2Fpartnership.sjp.co.uk%2Fbarrywells%2Farticle%2Fdetail%2Fsjpp%2Fweekwatch-16-10-2023.html

The Last Word

“I have been a politician for many years. I’m an athlete. Never in my life have I been so happy about taking seemingly second place.”

Donald Tusk celebrates after exit polls suggest his party and its allies earned enough seats to form a Government in the Polish election over the weekend.

Amundi and GMO are fund managers for St James’s Place.

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SJP Approved 16/10/2023