Black Holes and Grasshoppers on Speed

It’s back to school week (hooray!!!) which means a) I’m back in your Inbox and b) deliriously celebrating the absence of a soundtrack of the rugrats bickering, bellowed instructions to poor old Alexa or even a teenager slithering into my office on her stomach, commando-style, during a work Zoom call to ask for some money.

So what’s been going on? Or what’s coming our way? First up, interest rates.

A little over 4 weeks ago, we slid into August off the back of an interest rate cut to 5%. The next meeting of the Monetary Policy Committee Big Cahoonas who set the rates is on the 19th of September. The general consensus is that rates will fall again given ‘monetary policy lags and fiscal tightening’. Huh?

Translated into normal speak, this means that it takes a while for monetary policy (moving interest rates up or down) to filter through to cheaper mortgages and less expensive debt and so more money sloshing around in our pockets to spend which gives the economy a Viagra shot. Which they kinda want as long as it’s not going to send inflation out of control again.

We can see the impact of ‘monetary policy’ in the headlines around us – yesterday Santander was the latest major bank to announce a reduction in fixed rate mortgage deals by up to 0.32%, following cuts from Barclays, HSBC and NatWest earlier this week.

The other major tool in the Money Toolkit is ‘fiscal tightening’ which can be as painful as it sounds. This means fiddling with tax, which of course means the government has more in their purse and we have less in our purse. And less in our purse cools inflation.

Labour has done a great job of making sure that most of us have heard of the Chancellor’s £22 billion black hole. Sci fi fans will know that a black hole cannot be destroyed by physical force, but it can be destroyed by higher capital gains tax, higher inheritance tax, less generous pension tax relief and lots of other cunning tools which I suspect she will deploy.

Here comes the Budget…

With the Budget fast approaching on 30th October (and The Sun already busy photoshopping Rachel Reeves onto a broomstick for the following day’s front page), it is worth considering what potential changes might mean for you, particularly if you are a higher rate taxpayer.

Pensions remain one of the best tools we all have to minimise how much tax we pay so make sure you’re up to speed on this.

If you want to do a bit of advance planning, these articles might help – 3 tips for higher rate taxpayers, 3 pension tips for the self-employed or some low-cost pensions reviewed for those of you planning a start or indeed wondering if you’re in the best place right now.

And capital gains tax. Although these three words will make most of us weep with boredom, if you own a rental property, shares outside an ISA, crypto, your business or other assets, the chances are that you will pay more tax on any gains you have made when you come to sell them in the future. Our tax hub has more help and pointers available.

There are some things we can legitimately do to mitigate this tax. For example, ISAs are lovely tax-free shelters for shares – we all have up to £20,000 a year we can put into a stocks and shares ISA so if you have shares outside an ISA, read up on how you can shove them over into a tax-free environment. And finally to tax we pay on interest, higher rate taxpayers with cash savings should certainly be aware of the benefits of Government bonds over cash – you can learn more these increasingly popular options here.

And finally a look at stock markets…

This summer, global markets rudely had a wobble the very day I was planning a few days on the beach on 2nd August. Just as I was wondering how I’d managed to shrink my bikini, Japanese shares had their worst day since Covid, and weak jobs data in the States gave people a short-term hernia. Financial Chicken Lickens ran around shouting that the sky was falling in, and markets slid into correction across the world.

But just when I was contemplating cancelling the beach day on Monday, things picked up again and by mid-August we were back up on a growth path.

Nerves remain about hot markets and high valuations. When we asked you guys what your main concerns were back in August, the biggest worry was over-exposure to US tech stocks. (Followed by assumed tax increases looming.)

Despite Nvidia looking like a grasshopper on speed, it remained the most-bought share in August on interactive investor, as Tesla exited the top ten list. As for funds, interestingly Fundsmith Equity left the top 10 for the first time since 2018.

This shows the bigger battle for any fund manager who has not gone large on a handful of US tech stocks. They look relatively weak. Time will tell whether they have been wise about over-hyped stocks. Or slow to accept that AI and tech is not a single sector, but the inevitable future. Next week we’ll share the best-selling funds across multiple platforms and consider this question in more detail.

Have a lovely weekend everyone. For those of you who like a flick through Good Housekeeping, I’ve written a 4-page feature in this month’s edition but more importantly, there’s a 6-page feature on crumble in the following pages. Nothing like a bowl of crumble after you consider whether to charge your kids rent, split your estate equally amongst children (nah – give it all to me lol), how to split a bill with friends who guzzle expensive wine and other money dilemmas!

Holly

Want to get Holly's weekly blog straight to your inbox?

Sign up for no-nonsense tips, tricks and food for thought every Friday!

SIGN UP

I would like to hear from you about products, events, general marketing and other things from Boring Money – including personalised content and ads - but please try not to make them as boring as everything else in finance!

Already have an account? Login