Newsletter – 19th February 2021

At the end of last week, we heard that the fourth quarter Gross Domestic Product for the UK rose by 1%, technically avoiding a double-dip recession (that’s when we have two negative quarters in a row), however the record-breaking annual fall of almost 10% in economic output last year underlines the damage wreaked by Covid on businesses up and down the country.

The Bank of England is warning that the economy could contract by around 4% in the first quarter because of the current lockdown.

At the beginning of this week, UK stock markets were buoyed by the news that more than 15 million people had received their first vaccination (this figure now stands at around 16.4 million, so over 31% of the adult population).

As the vaccine rollout gathers pace and data reveals a decline in coronavirus cases, the major global equity markets have also been pushing forward and some countries, including the US, Germany and Australia, have all reached record highs in recent days, whilst Japan’s Nikkei 225 index past the 30,000 level for the first time in more than 30 years.

The FTSE 100 recorded its highest point in 12 months this week, though it is still well down from this time last year. By contrast, the more UK centric FTSE 250 index is now sitting pretty close to its all-time high.

Unfortunately, these market rallies have not been sustained and yesterday saw all the major markets end the day in the red.

We have also seen oil prices increasing, this helped along by the expectation of lockdowns being eased globally and therefore the expectation of a renewed demand for oil. We should start to see the impact on this at the petrol pumps in the coming weeks!

On the currency markets, Sterling has had a good week, now sitting a little shy of $1.40 and €1.15, though this stronger pound tends to dent the FTSE 100 index, as around 70% of its constituents derive most of their earnings from overseas and a rise in the pound against the dollar has the impact of reducing their profits.

Incidentally, for those interested in what happened to GameStop, their share price, which at one stage hit 483.00, closed yesterday at 40.69 and looking at the charts, the price continues to fall.

The Office of National Statistics showed that consumer price inflation rose to 0.7% in January (from 0.6% in December), with food and household goods the main drivers. Analysts had been expecting a nudge lower to 0.5%. The core inflation figure, which strips out volatile food and energy prices, held steady at 1.4%.

We are now less than two weeks away from the Budget and as the government’s Covid 19 spending is approaching £300 billion, there is talk that the Chancellor will increase taxes and axe reliefs to help cover these costs. Some of these tax rises could be revealed on 3 March, though it’s perhaps more likely that these announcements will occur further down the road. Either way, it is a good idea to make the most of tax reliefs and exemptions while you still can.

These will include making sure you use your £20,000 ISA allowance for this tax year and for those with investments not sitting in tax-free ISA wrappers, you should use your capital gains tax allowance (CGT) as well.

For those of you in the Adler portfolios, we would have used some or all of your capital gains allowance for the year when updating your portfolios with our recommendations for 2021. If you haven’t responded to our email yet, please can you, as we are unable to update your investments without your agreement, ours being an advisory service.

The other rumour that has been abounding for years is whether higher rate tax relief on personal pension contributions could be reduced. Whilst the majority of pension contributions are collected net of basic rate tax relief (collected on your behalf by your pension provider), those paying higher or additional rate tax can claim an extra 20% or 25% of tax relief, respectively via their tax return. There has been talk that this will be set at a flat 25%, so an improvement for basic rate taxpayers, but obviously a big loss for those in the higher and additional rate tax bands. The expectation is that this change could raise £4 billion a year for the Treasury.

If you’re intending to make a personal pension contribution, you may wish to consider doing that before this Budget. Any changes to tax relief is not expected to hit pension contributions paid by companies, where these are treated as another business expense in helping reduce the corporation tax bill.

Let’s see what Boris has to say on Monday regarding the roadmap out of the current lockdown, which is certainly looking more hopeful as the vaccine rollout continues at speed, though I’m expecting a very cautious relaxation.