Fun and Games

I have tried to write this Informing You for the last two weeks but events kept overtaking me.  So I apologise if by the time you read this there has been a change of policy/chancellor/government.

It is three weeks today since the (then?) chancellor announced his ‘fiscal event’.  I was actually on holiday when it happened and was not sure I had read it correctly.  In fact I wondered if he and the Prime Minister had been playing a special Downing Street edition of Monopoly and he has mistakenly picked up Community Chest cards rather than his speech. I half expected him to announce we had all won first prize in a beauty contest and would be given £50.

We have all witnessed the impact this statement had on markets and since then we have seen a number of the policies announced be ‘revised’, and I doubt we have seen the end of this.  But is all the blame that is being heaped on this ill-judged statement fair?

Well the immediate crisis that occurred in the UK Pension market was exacerbated by his statement of that there is no doubt.  The further weakening of the Pound was not helped but this has I think been overblown as the currency issues we are seeing are not unique to Sterling.  In times of financial stress the Dollar always becomes the currency of choice and this time is no different.

In fact compared to the Euro the current level of Sterling is actually higher than it was five years ago and is pretty much the average rate it has been in that time.  Sterling is also higher against the Japanese Yen than at any time over the last five years.  So compared with currencies other than the US$ the Pound is doing alright and certainly no worse than other global currencies.  I am not sure this is the impression the media would have you believe.

Much has also been said about the extent of our national debt but once more this is no worse, and in fact better than most of the G7 countries as a proportion of GDP.

The constant negativity heaped on us by the media tends to make you think we are in a worse position than we actually are.  Having lived through some really tough times I can assure you I would rather have the full employment we have just now than the 10% rate of the early 80’s.  Much has been made of the cost of borrowing going “through the roof”.  Well as someone who’s first mortgage was at 16% I would suggest the current rates are maybe only a few steps off the ground.

Also this is not unique to the UK.  In the US mortgage rates are nudging 7%, the highest they have been for over twenty years but once more the media would have you believe this was a purely UK problem.

I am not saying this is not going to come as a shock to a generation that has been used to borrowing at virtually nothing, but this period had to come to an end and what we are experiencing is the pain of getting back to a more normal interest rate environment.  There will be casualties and those that have been used to paying for cars on PCP may well find the cost of continuing to do so becomes prohibitive by the time their current deals come to an end.

But as they say ‘every cloud…’ and there is no doubt that the current woes are benefitting some people.  Any exporter to the US is in clover just now as I am sure will be any retailer that sells to US visitors who will be filling their boots.  Savers are at last starting to earn some interest on their deposits although this is still less than inflation.

But the biggest change in our world as financial advisers has been in annuity rates.  Having for years been in the doldrums they have now sparked back to life and now offer a rate of income that is far more attractive than at any time in the last fifteen years.  This is good news as it means that clients for whom keeping their pension invested in drawdown would be undesirable can at last get a decent rate of income for the rest of their lives.

As for investors as has always been the case in periods such as this patience is key.  There is no reason why, once we get back on an even keel with interest rates and some form of peace is established in Ukraine, the losses suffered in the last nine months will be recovered and this could well happen far quicker than you would expect.

Until that day, remember the news media is designed to create anxiety so playing a board game rather than watching the news might help, but perhaps not Monopoly.