2023 in review for investors
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
2023 has been an eventful year for investors. To some extent, it has been an easier year than 2022, with equities and fixed-income assets delivering better short-term returns (overall). Most central banks, including the Federal Reserve and the Bank of England, seem to be slowing down – perhaps even preparing to reverse – their interest rate hikes.
China (the “factory of the world”) is expected to reach 5.4% growth in 2023, recovering slowly from its years of strict COVID-19 lockdown. Closer to home, UK inflation has come down amidst lower global energy prices. The Consumer Price Index (CPI) now stands at 4.6% compared to 6.7% only a month before.
Yet despite many positive changes, challenges remain for investors as we enter 2024. Conflict threatens to escalate in the Middle East and in Ukraine, with potential ramifications for civilians living in these areas and for investors further abroad.
Below, our Lincoln financial planners at Castlegate discuss some of the key events in 2023 which have affected investors. We also offer some thoughts about what may lie ahead in the coming months and the possible implications for portfolio planning.
We hope these insights are useful to you. To discuss your own family financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
Has the picture improved for investors in 2023?
Cast your mind back to 12 months ago. Many people were dealing with great anxiety about their energy bills after Ofgem (the energy regulator) raised the price cap by 54% in April 2022 and averaged prices went up again, by 27%, in October.
A primary driver of price increases was the war in Ukraine. Russia’s invasion had significantly disrupted food and energy prices. The IMF (International Monetary Fund) soon found Britain to be the “worst hit” in Western Europe by the energy crisis due to our average home inefficiency and high reliance on gas to heat properties.
More recently, the picture has improved somewhat. From 1 October – 31 December, the cap has been set at an annual level of £1,923 for a (“dual fuel” household). At the same time, inflation has come down to 4.6%; the smallest increase in 2 years. Many investors have welcomed these developments, as lower energy costs could allow for more disposable income to commit towards their portfolios. Also, lower inflation reduces the erosion of “real returns” from their existing investments.
Another area of development in 2023 has been the UK’s shifting tax landscape. In April 2023, various tax-free allowances were reduced for investors. The Capital Gains Tax (CGT) Annual Exempt Amount went down from £12,300 to £6,000 per year. In 2024, it is expected to fall even more to £3,000. The tax-free Dividend Allowance also lowered from £2,000 per year to £1,000 in April 2023. Next year, it will go down to £500.
This has made it more challenging for investors to construct a tax-efficient portfolio, although many optimisations can still be performed with the help of a financial adviser.
What lies ahead in 2024?
A big question on many minds is whether there will be an early general election in 2024. Recently, the Chancellor’s 2023 Autumn Budget offered a cut to National Insurance (starting in January) and an 8.5% increase to the State Pension in April 2024. Campaign guru Isaac Levido has been brought back full-time for the Conservatives and Labour’s Kier Starmer has told his shadow cabinet to prepare for an early poll, possibly next summer.
An election, of course, would have significant implications for investors in 2024. Manifestos would be published by parties to present different options on issues which might include VAT, National Insurance, income tax and inheritance tax (IHT). The impact of general elections on stock markets is generally less well understood, however. This is a reminder that investors should be careful to maintain a long-term view with their portfolios and not try to “time the market” based on political predictions.
Regarding inflation, the Bank of England (BoE) and the Office for National Statistics (ONS) appear optimistic that figures will come down in 2024. However, the BoE target of 2% may not be attained until 2025. If inflation falls over the next 12 months, then central banks will face pressures to lower interest rates. Lower rates would have a big impact on markets and the wider economy. For instance, newly-issued bonds may become less attractive due to lower yields and shares may experience greater buoyancy as more investors seek better returns from equities.
However, it would be foolish to make confident predictions about inflation and interest rates. If COVID-19 reminded us all of anything in 2020, it is that events can derail economic forecasts very quickly. Right now, for instance, conflict is still threatening to spill out in Gaza and Ukraine, with other regions (e.g. Taiwan) also highlighted as potential “flashpoints”. The best approach, therefore, is for investors to keep a long-term view with their investments and to remain appropriately diversified.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
