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Client Update - 3rd December 2021

A more balanced spread of news for you this week split between our old friends COVID vs “The Market”. Omicron has become the discussion point of the last week as we all stand by to see whether this new variant from South Africa can become a dominant strain and what this will mean to infections, hospital admission, deaths, vaccine efficacy and also – Christmas.


Despite the onset of yet another COVID variant, US Federal Reserve Chairman Jerome Powell spoke this week about how he still expects a relatively quick and orderly withdrawal of the support for financial markets. Despite central banks talking at length that withdrawing support for markets does not immediately lead into a higher interest rate environment, the writing, according to the FED, appears on the wall that rates will go up in the New Year. This commentary this has caused some volatility to the markets over the last few days. In response to questions from Congress, Mr Powell admitted a risk of inflation to the upside and that the bank could react by withdrawing stimulus brought in eighteen months ago more quickly than previously expected (to quote “a few months sooner”) with interest rates being increased earlier in 2022 than previous guidance suggested. It is still worth remembering that we are talking about rates eventually rising to 2%, not the double digits seen in the 1990’s. Nonetheless, in a world of high debt for Governments and the consumer, higher rates are a danger if not handled sensibly.


We have also had to consider some disagreement from the makers of the mainstream vaccines with regards to how effective they would be against the new Omicron strain. It is evidently too early to say, but it is heartening to see the UK Government banging the drum once again for an enhanced winter vaccination programme and certainly trying to act early in trying to limit both the spread of a new variant, and also its impact on our lives. Germany has this week announced that it will consider mandatory vaccinations, following hard on Austria’s strict lockdown and vaccination announcements made previously.

Apart from in health, one of the key threats from new variants of COVID around the world could easily be the cuts in productivity in countries pursuing zero COVID strategies, such as China, were widespread factory shutdowns to contain outbreaks could put further pressure on the global supply chain and sustain higher inflation for a longer period. Consumers may also spend more on goods than services over the winter as they become less confident in going out, along with the annual spending deluge on and around Christmas, all adding to inflationary pressures.


Away from the ever-changing news on the impact of global COVID rates and variants, came an important update in this week’s FT on the likelihood of changes to UK Capital Gains Tax rates. We have been very conscious over the last six months of changing taxation for our clients, especially with regards to the Chancellors search for extra tax revenues to balance the books after the initial spend on the COVID pandemic. According to reports, the proposals to raise capital gains tax rates to align more closely with income tax have been shelved, for now. This week the Treasury in the UK wrote to the Office of Tax Simplification to pass on the recommendations they made to increase rates, after a review requested by Rishi Sunak. It appears they are concerned over the burden a rate change would place on the already overstretched administration at the HMRC, and also the impact on wider policy trade-offs that they are not yet ready to make. Can it be a coincidence that tax changes may not be as significant as we thought as the Government realise that we are just a few years away from another election!


That is all for now, I hope this update finds you and yours keeping well, please do have a good weekend.


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I thought it would be good to take a short break from the inflation / interest rate issues within the UK and US markets and for this week cast our eyes over to Asia, with particular focus on China and