3-2-1 - Dusty Bin!

Interest rates were kept on hold at 4% this week, as the Bank of England narrowly voted to keep rates on hold, against a backdrop of growing unemployment and signs of an economy which continues to struggle. In some good news for households, they have declared that inflation has peaked and is expected to fall.

It’s almost as though the Bank is in a game of Good Cop, Bad Cop with the Chancellor, leaving her to present the Budget in a few weeks’ time and then potentially swooping in when they next meet on 18th December with a placatory cut as we all lick our financial wounds. Nasty Chancellor. Let Governor Bailey put a Band Aid on your boo-boo with a little 0.25% rate cut.

Because, of course, the anticipated tax increases heading our way mean less money in our purses to spend, which is like financial decaf. The economy slows, inflation eases and we no longer need higher interest rates to curb our spending – we’re curbing our spending naturally because we’ve got less left!

Budget Countdown but the prize is Dusty Bin

In this week’s Treasury gameshow, we’ve had our expectations well and truly managed. The prize on the 26th November is Dusty Bin, not a speedboat or a dream holiday. On Tuesday, Rachel Reeves gave an unprecedented Pre-Budget talk, which I can paraphrase thus: “Don’t hate me but I’m going to have to put income tax up”. We will not know for sure until the red briefcase comes out, but the direction of travel is clear. More tax.

When there is a black hole of around £28 billion+, you can tinker and tweak and fiddle with dozens of changes here and there. Or you can go Big Bang. Raising income tax by 2p would raise about £16 billion in one swoop. For those interested, I hosted a webinar on this with advice firm Netwealth for the Telegraph Media Group last week – you can watch it here.

Will she, won’t she?

All this Budget speculation is unhelpful and yes, I do appreciate the irony of me writing this, as I join in. It’s like being on the Titanic, but nervously discussing icebergs before setting sail.

However, it’s impossible to ignore. Consumer confidence is low, business spend is cautious, advertising spend is limp as campaigns are put on hold AND, at the same time, the jobs market is tightening up as employers respond to National Insurance increases and higher minimum wages.

Lots of our readers are concerned about pension rules and it’s not just our readers. Record numbers have taken out their maximum tax-free cash amount (25%) earlier than we would normally see. In moves which might well backfire, the last year has seen £18 billion taken out compared to nearer £11 billion the year before.

Platform AJ Bell has launched a Government petition calling for a pension tax lock – a pledge that the Government won't tinker with pension tax changes, such as tax relief on contributions or pensions tax-free lump sum, for at least this Parliament.

The petition reached over 20,000 signatures which warrants a response from the Government.

With regard to the proposed ‘pension tax lock’, the Government does not comment on proposed tax changes or tax related speculation ahead of Budgets.

Which is odd, given that the Chancellor gave a 20 minute speech this week doing just that.

Not satisfied with the response, the Petition Committee told the Government to provide a 'revised response'. This is as bodice-ripping as pensions get my friends and we’ll track progress with interest.

Enough flipping Budget already, what’s going on with markets?

The other big question in town - Is US Tech in a bubble? - continues to rage as stock markets keep up their astonishing run. The madness is neatly encapsulated by this week’s shareholder vote to approve a salary package of ONE TRILLION DOLLARS for Elon Musk at Tesla. If he chucks a sickie, that would cost the company around $2.75 billion for the day.

If he lived in the UK, Rachel Reeves entire budget could just be to increase Mr Musk’s income tax. She’d fill the black hole and only lose one vote. Genius.

Back to the (potential) tech bubble and AI. I’ve written on this in previous weeks and it’s good to remind ourselves of some key rules.

1) Diversify – so be aware of how much you have in US tech – is this sensible? There are lots of other plays. Healthcare is starting to have a better time, the fabulously-named Indian Index, the Nifty 50, has shown good growth and the UK, China and Japan have all had good runs too. Don’t have all your eggs in one basket.

2) Don’t be greedy. Most companies are slapping AI into their company strategy, but it can just mean that Errol in Accounts is using ChatGPT once a month. Penny stocks and new whizzy AI firms with silly names will be 99% over-rated. Also, online scams are on the rise as criminals impersonate financial brands and commentators. Be very careful about anything which sounds too good to be true or anything which pressurises you to move fast.

3) Have enough cash. At some stage in the coming weeks, I’m planning to sell some things to increase my cash holdings. I have a few things I’ll need cash for next year and I’m happy to take some profits now and lock in some certainty, rather than risk having to sell in the middle of a nasty correction. If you don’t need a lump of cash in the coming months or next year, and you have ticked the diversification box in Point 1 above, then no need to do much else.

On a final note, next week Karen Ward (J.P. Morgan’s Chief Market Strategist and a flipping smart lady), is discussing the US tech sector in a webinar. I’m not being paid to promote this, nor have I been asked to, but I think that would be a good thing to check out for anyone interested. She knows her stuff and can articulate it well. It will be geared to a professional audience so may brain fry less confident investors.

Have a great weekend, everyone. I’m watching England play rugby at Twickenham on Saturday, but have hardcore jetlag after flying in from Japan. If anyone sees someone snoozing through the match, please forgive me!

Holly

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