For these of us who lived by means of them, as economically-active adults, 2008 and 2009 are tough to overlook. The deepest recession in 60+ years, a world monetary disaster, banks collapsing — it was, as that previous Chinese language saying goes, an “attention-grabbing time”.
Ditto 2020 and 2021, in fact. Few of us, I believe, thought that we’d ever reside by means of a world pandemic, and see the UK financial system put into repeated lockdowns.
And ditto 1987. Black Monday, in October 1987, noticed the FTSE 100 fall 23% in two days, and 36% in a month. Or 1992, when the UK fell out of the European Change Charge Mechanism, and rates of interest rocketed from 10% to 12% after which (briefly) to fifteen% — all in a single day. Which occurred to be my birthday, at a time when my spouse and I had the most important mortgage we’d ever had in our younger lives.
And even 1967, when the federal government devalued the pound, and prime minister Harold Wilson went on tv to deal with the nation, and promise that the pound in our pockets wouldn’t be devalued. Even at 13, I didn’t see how that was attainable. (It wasn’t.)
Painful, however fortunately boring
However what of 2023?
When the historical past books are written, I feel that there will likely be two takes on 2023.
The primary is the large macro image, which — comparatively talking, in comparison with the years I’ve simply been speaking about — was one thing of a non-event. No international crises, crashes, collapses, or different monetary phenomena. No new international pandemic, no new main armed conflicts (ignoring Gaza, which maybe I shouldn’t), and we didn’t have a major minister who crashed the financial system.
Boring, actually. However very welcome after 2020, 2021, and 2022.
The second image is the private tackle 2023, the place the view is much less sanguine. As people, we’ve all been considerably below the cosh, battling excessive inflation and excessive rates of interest in a low-growth financial system.
And the ache is about to worsen, I believe, as growing numbers of individuals come off the ultra-low mounted mortgage rates of interest prevailing since 2009, and transfer onto the upper mortgage rates of interest we’re seeing now. Mortgage brokers report falling charges, to make certain — however they’re nonetheless method greater than the charges which have been typical for the final decade or so.
Taxes, too, are taking a much bigger chunk of individuals’s incomes, not least as a consequence of ‘fiscal drag’, the place wages rise quicker than tax bands, dragging extra individuals into higher-rate bands. It doesn’t assist, both, that dividend tax allowances and capital positive factors tax allowances are shrinking, too.
Modestly beneficial markets
The Footsie rose modestly in the course of the yr, climbing from 7,452 on January third to 7,698 on the Friday earlier than Christmas, as I write these phrases. The yr’s excessive level, although, was late February, when the market reached 8,014. Regardless of flirting with 7,900 a few months later, these highs had been by no means recaptured.
What of fixed-interest devices? Nicely, in a high-inflation, high-interest fee setting, bonds and gilts (as I’ve written earlier than) not surprisingly carried out poorly — however as we’re primarily fairness buyers right here, that can have troubled comparatively few of us.
(A minimum of, troubled us instantly: it actually hasn’t been a very good yr for so-called ‘lifestyled’ pensions, which swap equities for bonds and gilts as savers grow old and near retirement: I’ve seen stories of would-be retirees’ pensions shrinking in worth by 30% or extra.)
The pound rose modestly in opposition to each the euro and the greenback, too, making it cheaper for us to purchase abroad property – extra on which, quickly.
Briefly, as years go, 2023 was in all probability as affordable a yr as we might anticipate.
Trying forward
What of 2024?
Detailed predictions could be silly: nobody is aware of how the markets will transfer over the subsequent twelve months, or what occasions will form these strikes.
However the broad macro image, I feel, is clearer.
Inflation, at present at 3.9%, will proceed to fall: the financial ache we’re experiencing is constraining demand. In flip, rates of interest can even fall, and earlier than the pundits had been anticipating even just a few weeks in the past. My guess: the Financial institution of England’s predictions of a ‘greater for longer’ rate of interest setting will show no extra dependable than any of its different predictions.
With rates of interest falling, inventory markets will rise. Some sectors will bounce again extra strongly than others: REITs, battered by greater rates of interest, ought to actually profit. Will the Footsie cross 8,000 once more? The percentages are affordable, I feel.
Earlier, I discussed the rising pound. Sterling’s nadir was in September 2022, as Liz Truss’s development and taxation insurance policies frightened the markets: the pound fell to $1.08 — considerably under at present’s $1.27.
However sterling was at $1.42 as just lately as Might 2021, so there’s nonetheless some technique to go. My guess is that 2024 will see sterling above $1.30, and probably above $1.35. In case you’ve received your eye on some decent-looking American shares, 2024 could possibly be the yr that the market strikes in your favour.
Completely happy New Yr!
So right here’s to 2024, and our collective wealth-building endeavours. A cheerful — and affluent — New Yr to you all.
