Client Update - 27th May 2022

In a change of position that has split the Conservative Party, Rishi Sunak has changed his previous plan of funding £200 off everyone’s energy bill, a loan that would be repaid over five years, to a repayment free £400 discount. The reduction takes effect from October, and direct debit customers will have the payment applied to their account, whereas customers with pre-paid meters will have the money applied to their meter or paid via a voucher. This comes alongside additional support for those on low incomes. The support will be funded by a temporary 25% tax on profits of oil and gas companies, news which so far has barely made a wave in the continued strong performance of energy stocks.

People on the lowest income will also get £650 paid directly into their bank accounts in two instalments and disabled people will receive £150. Pensioners who receive the winter fuel benefit will get an additional £300 – meaning in theory a low-income pensioner could get a total support package of £1,500 this winter.

This support comes in the face of a renewed cost of living crisis with the UK energy cap rising in April from £1,277 a year to £1,971. Ofgem have even suggested this cap could rise to £2,800 from October.

In the face of high inflation that we have commented on for months now, it has been interesting to see over the last week or so, that the markets have started to move their attention from just focussing on high inflation, instead starting to consider future slowing growth in global economies. One of the problems encountered in portfolio management year to date, has been that global equities overall have been struggling at exactly the same time that bonds have been losing value sharply in the face of rising interest rate expectations.

Historically, diversifying investment portfolios with assets that perform at different stages of a market cycle has ensured a smoother journey than focusing on just one asset class and bonds tend to have defended well when equities fall as investors rush to purchase defensive assets. In 2022, inflationary worries have put pressure on both equities and bonds, as other investments, such as gold and commodities have been better performers. Over the last few weeks, we have started to see bonds perform better as equities have remained weak and it will be interesting to see if this slow recovery can spread into the much-maligned sectors of 2022, such as technology. As commented on in previous weeks, the investment landscape often looks dire immediately before a swift and sudden recovery. It certainly seems that some investment opportunities are starting to come to light after a difficult start to the year.

There will be no client email next week as we look to celebrate the Platinum Jubilee, so I look forward to dropping you a line on the 10th June. Until then, do look after yourselves.