Economic – Page 2 – H.J.Scott & Co

11/11/202405/01/2025

Slack News Fortnight

Obviously It’s been anything but a slack fortnight at the office. With 5 major events occurring, which have repercussions for investors, I thought it would be best to wait until all 5 unknowns were in before I commented. Individually, each of these domestic and international geo-political events will shape how we manage our investment portfolios and how we help clients plan their finances, both now and into the future.

Plan | Save | Grow | Spend | Gift | Pass

But firstly I would like to extend our condolences to the families of the two clients we suddenly lost this week. After almost 38 years building long-term client relationships it’s inevitable that some must come to an end. Currently we are helping the families of 8 of our clients who have passed away in recent months.

Hopefully our previous financial planning and long-term client relationships will help at this difficult time.

The 5 known unknowns

“There are known knowns, things we know that we know; and there are known unknowns, things that we know we don’t know. But there are also unknown unknowns, things we do not know we don’t know.”

Donald Rumsfeld – United States Secretary of Defense.

Two weeks ago we knew there was a UK budget to come, a new Conservative leader to be chosen, a new President of the US, a further interest rate decision to be made in the US and also an interest rate decision due from the Bank of England. All those changes would move both domestic and global shares in some way. Some outcomes were expected, some were binary decisions which were too close to call and some were just plain unexpected.

28/10/202428/12/2024

Investors in the Cross Hairs

We ended our previous blog with:

If tax concessions are taken from one area they will seek others. Expect to see changes brought in concurrently to limit ISA contributions and increase the rates of Capital Gains Tax to investments outside of ISAs. The subject for next time.

So as promised here is my take on the increase in Capital Gains Tax and the decrease/capping of an individuals ISA allowance.

Currently there is no CGT on ISA or Pension investments, we expect that to remain the same. This blog is really only of interest if you hold excess investments in a General Account outside of your ISAs & Pensions. If you do not have a General Account there is no need to read on, unless you are interested. The rest of you can get back to what you were doing before this blog interrupted you.

Increase in Capital Gains Tax

We have left this blog quite late, with the Autumn Budget just 48 hours away now, but we have been waiting to see if any clearer information surrounding tax rates would be “leaked”.

Investment capital gains have always been taxed at a lower rate than earned and unearned income. That differential is about to become closer, or indeed fully closed, with maybe even a doubling of the rate of tax. Basic rate tax-payers currently are charged 10% on the gain achieved from holding investments (higher for property gains) Our worst expectations are that this could be increased to 20%. For higher rate tax-payers, their current 20% rate could be raised to 40%.

08/09/202405/01/2025

Long and Variable Lags

Milton Friedman, the conservative University of Chicago economist and Nobel Prize winner, started talking about long and variable lags in the late 1950s. He described that the process central banks follow to aid or retard economic activity by adjusting interest rates up or down is fraught with timing issues. When interest rates rise, they will eventually show their effect, but very little change occurs immediately.

Think of economic activity as a fully laden oil tanker, when the brakes are applied it takes miles and miles before the slow down to a standstill finally occurs. The knack therefore is not to brake too late or the tanker will run aground.

There is an emerging fear that central banks should have applied the brakes months ago.

We have watched valuations of our portfolios ebb and flow over summer in typical fashion. Veteran investors have experience of lower return summer months and higher return winter months. But suddenly September is back to haunt us once more as the month of the year which typically gives the lowest returns. This year it’s negative returns so far, taking our valuations down to the lowest point since April.

The US Federal Reserve has maintained the confidence of market participants so far as a delivery of a “Soft Landing” seemed to be achievable. In turn this soft landing was anticipated here in the UK and across Europe. Last October in “Have Interest Rates Peaked?” I said;

The real indicator for central banks is the level of unemployment. So far the rises have been low, but at some point the trickle picks up speed and then it positively floods higher if central banks send rates too high and put companies out of business. The level of un-employment itself is a lagging indicator. The numbers aren’t reported until it is too late and those individuals are placed on “the dole” or whatever it is called today.

Category: Economic