Welcome to some more financial musings, this time a little earlier in the week than usual. I hope this finds you well and surviving this exceptionally hot week. As I write this from my garden I must say I am enjoying the sun and some much needed vitamin D. My cat less so, who seems to have broken and may be in need of switching off and on again…
Today I’ll be writing briefly about three key topics; the UK recession (which is now officially a thing), the declining importance of wearing bras and our forthcoming hike up Snowdon raising money for your charities. If you’re a visual communicator then rest assured you’re catered for, as these discussion points will be supported with some handy charts and a suitably dramatic photo of a mountain (which may or may not actually be Snowdon).
It’s Official: The UK is Now in Recession
Today the news broke; the UK is now officially in recession. If you read the headlines today you could be forgiven for already having gathered your favourite family members, pets and toilet roll (no-one’s falling for that one again) and heading to your nuclear fallout shelter. If you’re down there I am hoping you still have WiFi so you can read this...
A recession is defined as two successive quarters of economic contraction and this is what we have, in spectacular style. After falling in Q1, Gross Domestic Product (‘GDP’) reportedly fell by a further 20% in the quarter running April to June. As expected, the media responded with macabre glee. They do love a good recession. ‘Dark times ahead’. ‘Deepest recession on record’. ‘The worst is still to come’.
One favourite the media couldn’t wheel out however, was ‘billions wiped off stockmarket’ (funny how they never talk about billions being ‘wiped on’ during the good times). Disappointingly for them, the UK stock market….well…shrugged it’s shoulders and then powered ahead, closing more than 2% up in a single day. What can we take from this? Well, firstly it’s another reminder that we simply cannot predict the short-term movements of stock markets, whilst news flow doesn’t always reflect in the behaviour of the equity funds that make up our portfolios. Secondly, neither the news that we have entered a recession, or that the quarterly GDP figures have broken all records, should come as a surprise to anyone. They certainly don’t seem to have been treated as new information by the stock market or equity investors who have clearly already priced in this state of affairs.
I’ve written several times in previous bulletins - and discussed in conversation with clients - that our Q2 GDP drop would inevitably be bigger by an order of magnitude than anything that has come before. The term ‘unprecedented’ gets thrown around a lot at the moment, but it is fair to say that the government effectively switching off the UK economy for a few months and enforcing a lockdown, really is unprecedented. I think few would argue that this hasn’t been necessary. The Coronavirus crisis is likely to be one of the defining humanitarian crises of our lifetimes. A number of our clients have suffered and fought off this terrible virus and some have sadly lost friends and relatives to it. Who knows what the cost to life and the economic health of the nation had decisive action not been enforced.
Hopefully now the economic data is out in the cold light of day we can begin to move forward and start to understand what a recovery may look like. More recent data suggests that a recovery is already gaining traction in the UK, although the Bank of England does not expect the economy to get back to its pre-pandemic size until the end of next year. The Office for Budget Responsibility, the government's official forecaster, says a full recovery may take even longer. Expect to become acquainted with the terms ‘smooth’ and ‘bumpy’ recovery in the weeks to come. More on this next week.
The next key milestone comes in October when the government’s furlough scheme begins to lift and we see how many of those employees actually have jobs to return to. We should also keep a close eye on the forthcoming chancellor’s statement, which is likely to include some tax hikes in certain areas, which are likely to fall largely on 'those with the broadest shoulders’, as the saying goes. The furlough scheme has cost the country billions and a plan for repaying our new national debt needs to be drawn up. An increase to capital gains tax seems quite possible (effectively a tax on the wealthier in society, when they make gains on investments), whilst we shouldn’t rule out changes to income tax either.
Whilst stock markets remain calm for the time being, that is not to say we don’t foresee more turbulence ahead. Although things have been remarkably calm in recent months, there remains the potential for a bumpy ride during the rest of 2020. What does this mean for the investments and pensions we manage on your behalf?
Well, if you’re close to - or already into – retirement, it is likely you’ll be invested in one of our more cautious portfolios, so remain well protected. You’ll still feel the bumps, but you’ve got plenty of padding and will still benefit from the recovery when it comes.
For those of you with a longer time span, you’re likely in portfolios higher up the risk/reward scale. This means you can expect more chop when markets get rough, but higher growth prospects overall longer term, especially if you are making regular contributions or top-us to your portfolio whilst markets temporarily move lower. Our holistic approach to your financial planning means you can rest assured that your money is invested in the right way based on your own timelines and objectives, with your portfolio well-diversified.
‘Bras Relatively Unimportant’ Says Not-Very-Scientific Study
In other news, a completely made-up chart created by an unknown source on the internet broke cover recently, tracking the relative importance of ‘things’ in 2020. So what can we deduce from this ground breaking research?
As a nation we seem to have mostly been surviving lockdown on a combination of coffee and – increasingly – alcohol. (For me it’s definitely the former, I should probably have shares in Nespresso by now.)
The oil price has slumped, resulting in lower prices at the pumps, however few of us have been able to take advantage as we haven’t actually been able to go anywhere.
We can finally rest easy as it appears the great toilet paper market bubble of 2020 is now over.
We are all glued to the internet more than ever (hopefully reading my bulletins, but probably Googling cat videos for light relief)
As you read this 95% of our readers may no longer be wearing their bras. I’m going to say this is probably a good thing for our male readership and I’d just like to go on record to confirm that I’m not, nor was I wearing a bra prior to Coronavirus.
Apparently approximately 70% of you are reading this unshaven sat in your sweatpants.
No-one has any idea what to do with their face masks...
Please note that past importance is not a guide to future importance. Toilet paper availability is not guaranteed.
Raising Money For Your Charities
For those that may have missed last weeks’ bulletin, the Wetherall’s team have organised a hike up Snowdon to raise money for charities nominated by you, our clients. We have set up a Just Giving page and are collecting donations for The Christie cancer hospital.
In addition, the business will also be pledging lump sums to The Christie, Alderhey Children’s Charity and Macclesfield Cancer Help.
We make our ascent two weeks from now, on Thursday the 27th of August, which should take around 4 hours of blood, sweat and blisters. Thank you to all of you who have pledged generous donations so far, we really appreciate it. Your support will help encourage us on the long ascent as we battle with existential questions such as ‘Are we nearly there yet?’, ‘Why did we agree to do this?’ and ‘Why didn’t we just take the train?’.
To those of you who are yet to make a donation, we would be hugely appreciative if you could support us with any amount large or small. To encourage this, I will continue to post increasingly dramatic photos of mountains in these bulletins that may or not be Snowdon, to encourage you to dig deep.
If you would like to make a donation and support our cause, you can do so by clicking here.
I think that about wraps things up for now, so I will wish you a pleasant weekend when it comes around. If there is anything we can help with in the meantime please just let us know.
