Autumn leaves are falling

Neil Birrell

Premier Miton’s Chief Investment Officer

Neil Birrell, Premier Miton’s Chief Investment Officer and manager of the Premier Miton Diversified Fund range, reviews the UK government’s Autumn Statement and what it might mean for investing in the UK.

Mind the gap

It has been clear since the Prime Minister and Chancellor took office that their main economic focus would be on public finances and to start repairing the massive funding gap that we have. The process was kicked off on 17 November in the Autumn Statement with the announcement of £55 billion of tax rises and spending cuts.

The last few weeks have been … something

Since the moment September’s mini-budget speech, delivered by former chancellor Kwasi Kwarteng ended, UK financial markets have been in a nervous state. Politics and economics have been at the top of the agenda.

In times when there is economic and political stress it will be difficult for politicians to prioritise their resolution, they are conflicted, although the economy should come first. This is exacerbated at present with financial markets being focused on the wider economic environment and they are, to a certain extent, actually driving policy, adding another factor to the equation. Everyone is looking for a greater degree of certainty and markets will also want to see prudent economic policy measures from government. We have seen what happens when imprudent policy is announced.

Therefore, the policy measures announced in the Autumn Statement were going to be scrutinised.

The next few years are going to be tough

We are probably already in recession and the Chancellor told us that the economy will shrink by 1.4% next year, before returning to growth the following year. However, the growth in 2024 is only projected to be 1.3%, followed by 2.6% and 2.7% in the following two years. Not exactly a boom!

Part of this is because of the need to repair the country’s finances. It would be all too easy to list some very large numbers on the economy which look bad by historical comparison, but you will have seen them already. But the point is a very important one; the tax burden will be very high for some time, that dampens economic growth because less money is being spent.

Inflation is not going away quickly; it is predicted to average 7.4% next year, the highest of any G7 member (an intergovernmental forum of 7 countries), according to the International Monetary Fund. The cost of living is continuing higher.

Part of the problem is that there is always a lag between measures being announced and them taking effect, in some cases it will be years before the full impact is felt. It is very much a case of short-term pain for long term gain; but we will all feel it to one degree or another.

Should we be pleased or worried?

We all have our personal situation to consider; taxes, savings, investments, mortgage payments etc and the outcome of the budget is probably not going to leave you in the “pleased” camp. However, overall, the policies announced, in my view, at the highest level, are sensible. That is not a political view, it is a practical one. We cannot continue to run such high levels, of increasingly expensive debt, much longer. The financial support provided to economies post the global financial crisis and the pandemic must be addressed and it will be painful.

Is there any good news?

Yes!

The economic projections provided by the Chancellor could have been a lot worse! The recession is not forecast to be deep or particularly long lasting. Whilst in subsequent years growth will not be exciting, it is growth. There have been many worse outcomes through previous economic cycles.

The policy measures may not be appetising, but they are prudent and, hopefully, can help provide a period of relative calm in politics and financial markets. I think we could all do with that.

Other than that, it is time to tighten our belts, both figuratively and literally.

Should we continue to invest in the UK?

In my view yes! Again!

When I talk to the fund managers who look after our UK equity portfolios at the moment, I am struck by the confidence they have in the companies in which they are investing. It doesn’t matter if they are investing for growth or for income, they are finding many opportunities to invest for the long term and are excited about the prospects. This applies particularly to small and medium sized companies that have been out of favour, as a group, for some time now. It really is quite encouraging.

It is a similar story coming from the bond team. The bond market, both those issued by the government and companies has been under real pressure as interest rates and inflation have risen. But now, they are telling, me there are some very interesting opportunities, particularly in the corporate (company) bond market. Prices have moved significantly lower this year, meaning that more return can be made for relatively less risk, some of it compelling.

Furthermore, domestic investors have been selling UK investments, broadly, since the Brexit referendum. If we see some confidence return to the UK overall, at least some stability, that money may return. That is even more the case for international investors, and with our currency at low levels rarely seen, it makes the potential in the UK even greater for them.

Don’t forget

Financial markets look to the future and take into account today. All the economic commentary I have written above is widely known. In our view, the UK stock and bond markets are offering some attractive prospects for the coming years. More importantly though, we are investing in specific companies and bonds, not the whole of the available market, it won’t all be good. But, if we are correct and the UK starts to get more widely favoured, then the UK could be one of the most compelling places to invest. Again, more importantly, we are seeking the best opportunities within that.

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Risks

All types of investment carry a degree of risk. It is possible you could lose some, or all, of the money you invest. The level of risk varies depending on the type of investment.

Reference to any particular investment or asset class does not constitute a recommendation to buy or sell the investment or asset class.

Equities (shares) can experience high levels of price fluctuation.

Government and corporate bonds generally offer a fixed level of interest to investors, so their value can be affected by changes in interest rates. When central bank interest rates fall, investors may be prepared to pay more for bonds and bond prices tend to rise. If interest rates rise, bonds may be less valuable to investors and their prices can fall.

Higher inflation can lead to some investments falling in value, particularly those with a fixed level of interest, for example government bonds and corporate bonds.

Changes in central bank interest rates can affect all types of assets, in particular, securities such as government bonds and corporate bonds that generally offer a fixed level of interest. If interest rates go up, the value of a bond may fall, and vice versa.

Future forecasts are not reliable indictors of future returns.

Glossary

Asset class
Different groups of investments such as company shares, bonds, commodities or property.

Bonds (or fixed income)
Types of investments that allow investors to loan money to governments and companies, usually in return for a regular fixed level of interest until the bond’s maturity date, plus the return of the original value of the bond at the maturity date. The price of bonds will vary, and the investment terms of bonds will also vary.

Deposit
An amount of money placed with a bank or other financial institution; these may take different forms and have different names, such as certificate of deposit. Deposits may pay fixed or variable rates of interest and may have set maturity dates.

Equities
Another name for shares (or stock) in a company.

IMPORTANT INFORMATION:

The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the content of this document, please speak to a financial adviser. The value of stock market investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.

Whilst every effort has been made to ensure the accuracy of the information in this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice. Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

For your protection, we may monitor and record calls for training and quality-assurance purposes.

Issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227. Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

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The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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Disclaimer

This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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Disclaimer

This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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