Guide: How an Olympic mindset could help you manage your finances effectively

What makes an Olympian? Natural talent or the hours put into training might be the first things that come to mind. However, their approach and mindset play an important role in their achievements too.

An athlete’s mentality will have a huge effect on how they pursue goals and their ability to perform well when it matters most. Getting in the right frame of mind for success could mean the difference between making the Olympic team and missing out.

With Paris hosting the Olympics in 2024, now is the perfect time to look at what you could learn from Olympians when it comes to managing your finances effectively, such as:

· Being goal-oriented

· Breaking down your performance

· Keeping your emotions in check

· Working with professionals.

Download your copy of ‘How an Olympic mindset could help you manage your finances effectively’ to discover how you could benefit from adopting an Olympic mindset.   

If you’d like to talk to us about your financial plan, please get in touch.

15 delicious and unique afternoon teas to enjoy across the UK

Tearooms across the UK are preparing to take part in this year’s Afternoon Tea Week, which takes place between 12 and 18 August 2024.

The celebration of the fantastic British tradition is a brilliant excuse to organise a catch up with your friends or family over a cup of tea and some delicious food.

If you’re looking for somewhere to celebrate this wonderful event, read on to discover 15 unique afternoon teas to try across the UK.

1. The English Tea Bus, London

If you want to combine a sightseeing trip with some delightful sweet and savoury treats, hop on this double decker bus to enjoy a panoramic tour of the capital as well as a delicious afternoon tea.

2. The Ivy on the Square, Edinburgh

If you’re looking for a Gatsby-feeling experience for a reasonable price, try the Dream Afternoon Tea at The Ivy on the Square in Edinburgh.

The restaurant’s gorgeous décor and the nature-themed platters offer a whimsical experience for you and your loved ones to enjoy.

3. The Cauldron, London

Step into a magical world to enjoy this afternoon tea at The Cauldron, a wizard-themed cocktail bar which allow you to blend your own tea and dine from a dragon’s nest platter.

The Cauldron also have locations in Edinburgh and Brighton if you’d like to enjoy this magical experience elsewhere.

4. The Falcondale Hotel, Lampeter

This restaurant, located in a Victorian Grade II listed country house, has been awarded two AA Rosettes so you can be sure their food is delicious.

Enjoy a delectable afternoon tea made with local produce before enjoying a walk around the gorgeous surrounding gardens.

5. Sherlock’s Mind Palace Afternoon Tea and Mini Mystery, London

Run by the official Sherlock: The Live Game team, book this afternoon tea to put your puzzle solving skills to the test while snacking on their delicious sweet and savoury treats.

6. Holy Cow, Edinburgh

If you are vegan or vegetarian, head to the Holy Cow on Dundee Street to enjoy a delicious animal-friendly and gluten-free afternoon tea.

7. House of Books and Friends, Manchester

For an afternoon tea located in a picturesque bookshop in the heart of Manchester, visit the House of Books and Friends.

Not only do they serve incredible homemade treats, but they also spend every penny of their profit on addressing loneliness and creating opportunities to bring people together.

8. Cobbles Kitchen & Deli, Ogmore-by-Sea

Can’t get enough of afternoon tea? Why not try a bottomless one?

Just a short drive from Ogmore-by-Sea beach, this deli offers bottomless tea, coffee, or soft drinks. Or, if you wish, you can upgrade to bottomless prosecco, mimosas, Aperol spritzs, or gin fizzes.

9. The Ampersand Hotel’s Science Afternoon Tea, London

Drawing inspiration from the nearby Science Museum, this afternoon tea is out of this world!

Enjoy their selection of science-themed treats, such as dinosaur biscuits and planet-shaped cakes, before exploring the Science Museum for free afterwards.

10. Palm Court at the Balmoral, Edinburgh

For a luxurious afternoon tea experience, visit the 2022/23 Hotel of the Year Scotland for a selection of over 80 teas, impressive tea pouring ceremony, and gourmet food.

11. Charlie and the Chocolate Factory afternoon tea, London

If you’re a fan of Roald Dahl’s beloved book, head to One Aldwych to enjoy the likes of “blue as a blueberry” cake pops and scones with snozzberry jam.

12. Pettigrew Tea Rooms, Cardiff

Located in the Victorian gatehouse right next to Cardiff Castle, the Pettigrew Tea Rooms is a picturesque spot for a delicious afternoon tea.

They also cater for vegetarians, vegans, and those on a gluten- or dairy-free diet.

13. The Cookery School, London

Have a hands-on afternoon tea experience at The Cookery School at Little Portland Street to learn how to craft your own cakes, sandwiches, pastries, and scones.

At the end of your class, you will sit down to enjoy the rewards of your freshly cooked food with a glass of sparkling wine or a soft drink.

14. The Lemon Tree, Wrexham

If a selection of unusual but delicious cocktails in a beautiful Victorian Grade-II listed neo-gothic building sounds tempting, then head to The Lemon Tree, which sits just outside of Wrexham’s town centre.

15. The Bulkely Hotel, Beaumaris

The Bulkely Hotel offers a luxurious afternoon tea experience, with their resident pianist playing while you indulge in delicious finger sandwiches and cakes.

Even better, you can bring your dog along to their dedicated indoor and outdoor dog-friendly areas so you don’t have to leave any member of the family behind.

How “time travelling” as part of your financial plan could help you secure your goals

Imagine you could time travel to understand how your financial decisions today might affect your lifestyle in 10 or 20 years. You may be in a better position to turn your goals into a reality. Read on to find out how working with a financial planner could give you a glimpse into the future.

Time travel films and books offer plenty of warnings about the perils of changing the timeline – even a seemingly small change can have a huge impact. With this in mind, a “time travelling” financial plan could help you make better decisions as it could enable you to see the effect they might have on your long-term security and happiness.

The good news is that you don’t need a DeLorean or the help of an eccentric scientist to look at your financial future.

Cashflow modelling could let you see the impact of the decisions you’re making

Cashflow modelling might not sound as exciting as hopping into a time machine, but it can be an invaluable tool when you’re creating a long-term financial plan.

To start, you’ll need to input data into a cashflow model. This might include the value of your assets, like savings, investments, or property, your regular income, and your outgoings. You’ll also want to add the financial decisions you’ve already made. For instance, how much you’re contributing to your pension each month.

With the basic information added, you can make certain assumptions to predict how your assets might change over time. So, you might include your investment portfolio’s expected annual rate of return to understand how the value could change or consider how inflation may affect your expenses.

The results can then help you visualise your assets and financial security in the future. With this information, you can start to understand whether you’re on track to secure the future you want. 

In some cases, you might identify a potential gap, which could lead to you adjusting your plans or making changes to your finances now so you can reach your goals. Again, you can use cashflow modelling to assess changes.

Adjusting your cashflow model may help you understand alternative outcomes

One of the most useful benefits of cashflow modelling is that it doesn’t just allow you to see the outcome of the actions you’re already taking. You can also model other scenarios.

So, you could see how adjusting your decisions now might improve your ability to reach your goals or even make aspirations you previously thought were out of reach achievable.

For example, you could model how:

· Retiring early may affect how much you can withdraw from your pension sustainably

· Increasing your pension contributions might afford you a more comfortable retirement

· Using your savings to travel the world now may impact your long-term financial security

· Boosting your regular investment contributions could grow your wealth over a long-term time frame

· Gifting inheritances to your children and grandchildren now will affect the value of your estate in the future.

As a result, using a cashflow model to understand the long-term implications of alternative options could help you find the right approach for you. Understanding the various possible outcomes may give you the confidence to adjust your actions and stick to a long-term financial plan.

It’s not just your behaviours you can model either, but unexpected events or changes outside of your control. Understanding the effect of a market downturn or period of illness where you are unable to work might enable you to create a safety net that offers you peace of mind.

Of course, the results of a cashflow model cannot be guaranteed and factors outside of your control, such as investment volatility, might also affect the outcome. Even so, it can be a valuable way to identify potential shortfalls or opportunities.

Contact us to time travel and discover how you could reach your goals

If you’d like to take a look at your financial future and understand what it could mean for your lifestyle, please get in touch. We can help you assess how the decisions you make could affect your goals.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow planning.

Higher-rate taxpayers: Beware of the 60% tax trap

The tapering of the Personal Allowance means some higher-rate taxpayers effectively pay an Income Tax rate of 60%, sometimes without realising. Fortunately, if you’re affected, there could be ways to reduce your tax bill.

A report in the Telegraph suggests 1.35 million workers were affected by the 60% tax trap in 2023/24. Collectively, they paid an extra £4.7 billion to the Treasury. Read on to find out if you could unwittingly be paying a higher rate of Income Tax than you expect.

The tax trap affects those earning more than £100,000

You might think the highest rate of Income Tax is 45%, and officially you’d be correct. Most people pay the standard rates of Income Tax. In 2024/25, Income Tax rates and bands are:

Please note, that different Income Tax bands and rates apply in Scotland.

However, the Personal Allowance is reduced by £1 for every £2 you earn over £100,000. If you earn more than £125,140, you don’t have a Personal Allowance and pay tax on all your income.

For example, if you earn £101,000, on the £1,000 above the threshold, you’d pay £400 of Income Tax at the higher rate. In addition, you’d lose £500 of your Personal Allowance, so this portion of your income would also be subject to Income Tax at 40%, adding up to £200.

So, out of the £1,000 you’ve earned above the tapered Personal Allowance threshold, you’d only take home £400 – a 60% effective tax rate. It’s led to the tapering being dubbed a “stealth tax” in the media.

Further compounding the issue is the fact that the Personal Allowance and Income Tax bands are frozen until 2028.

While the thresholds are frozen, many people are likely to receive wage increases. As a result, more people are expected to be caught in the 60% tax trap in the coming years.

Don’t forget your salary might not be your only income that’s considered when calculating your Income Tax bill. For example, you could be liable for interest earned on savings that aren’t held in a tax-efficient wrapper.

Contact us if you’re unsure which of your assets could be liable for Income Tax.

3 legal ways to avoid falling into the 60% tax trap

If you’re affected by the tapered Personal Allowance, thinking about how you structure your earnings may provide an opportunity to reduce how much you’re giving to the taxman. Here are three excellent options you might want to consider.

1. Boost your pension contributions

One of the simplest ways to avoid paying 60% tax if you could be affected is to increase your pension contributions.

Your taxable income is calculated after pension contributions have been deducted. As a result, boosting pension contributions could be used to reduce your adjusted net income so you retain the full Personal Allowance or reduce the proportion you lose.

Increasing pension contributions could help you secure a more comfortable retirement too. However, keep in mind that you cannot usually access your pension savings until you’re 55 (rising to 57 in 2028).

2. Use a salary sacrifice scheme

If your workplace has a salary sacrifice scheme, it could also provide a useful way to reduce your overall tax liability.

Salary sacrifice enables you to exchange a part of your salary for non-cash benefits from your employer. This could include higher pension contributions, childcare vouchers, or the ability to lease a car.

By essentially giving up part of your income, you might be able to bring your taxable income below the threshold for the tapered Personal Allowance.

You should note that salary sacrifice options vary between employers, so it may be worthwhile to check your employee handbook to see if any options could suit you. 

3. Make charitable donations from your income

If you’d like to reduce your Income Tax bill and support good causes, you could make a charitable donation. Again, by deducting donations from your salary before tax is calculated, you could manage how much of the Personal Allowance you lose.

Contact us to talk about how to manage your tax bill effectively

There may be other steps you could take to reduce your overall tax bill. A tailored financial plan will consider your tax liabilities, including from other sources, such as your savings and investments, to highlight potential ways to cut the amount you pay to the taxman.

If you’d like to arrange a meeting, please get in touch. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

More than half of homeowners don’t have enough life insurance to protect them

Taking out a new mortgage is often a trigger for considering how you or your family would cope if you faced a financial shock. Yet, a report from Which? suggests that more than half of homeowners don’t have enough life insurance to protect them.

If you took out life insurance, it would pay a lump sum to your beneficiaries if you passed away during the term. It could provide essential financial support to your loved ones if they’re dependent on your income should the worst happen. The lump sum may allow your family to pay off outstanding mortgage debt or cover other living expenses which would mean they’re more financially secure.

Life insurance can be difficult to think about. However, it’s often an important step in creating long-term security for the people who matter to you most and offer peace of mind too.

The average household with dependents faces an almost £90,000 life insurance shortfall

Worryingly, the Which? data indicates that many households don’t have enough life insurance cover, and it could leave their families facing a shortfall if they pass away.

On average, households with dependents had an £89,800 shortfall. For homeowners with children, the gap was even larger at £194,200.

As a mortgage is often the largest expense your family will pay, a life insurance gap could potentially mean they lose their home or face financial stress if your income was lost.

As a result, taking some time to understand the provisions you already have in place, and whether it would provide enough to offer your family financial security could be vital.

Comparing your life insurance to your mortgage balance

Reviewing your outstanding mortgage balance may be a good place to start when you want to understand if your life insurance cover is enough. If you passed away now, would it provide your family with a means to clear the mortgage?

If providing a means to pay off outstanding mortgage debt is the main reason you want life insurance, cover with a decreasing term could be useful.

With decreasing term life insurance, the lump sum that would be paid out decreases over time to reflect the falling value of your mortgage as you make repayments. The key benefit with this option is that the monthly premiums you need to pay to maintain the cover are likely to be lower than if you opted for life insurance that didn’t decrease.

You should consider how quickly the value of the potential lump sum would fall. For instance, if it falls significantly faster than the amount you owe on your mortgage, it could create an unexpected shortfall.

Decreasing term life insurance often isn’t suitable if you have an interest-only mortgage, as your mortgage balance would stay the same throughout the term. As the payout falls it might not be enough to cover the outstanding debt.

While a mortgage is often a key trigger for considering your financial resilience and how life insurance can act as a safety net, there are other expenses you might want to factor in as well.

Considering your family’s needs could help you choose cover that’s right for you

To provide your family with long-term financial security, you may want to review areas beyond your mortgage too.

Depending on your family’s needs and other income sources, you might want to include day-to-day living costs so that a life insurance payout could replace your income. This option could help your family maintain their lifestyle while they’re dealing with grief and provide children with stability, such as by covering education fees to ensure they could remain at their current school.

Remember, your circumstances and lifestyle can change, so regularly reviewing your life insurance and considering if it still aligns with your needs could be a valuable step.

Contact us to talk about taking out appropriate financial protection

Contact us to talk about what level of life insurance would protect your family and other forms of financial protection that could offer you peace of mind too. We’ll help you understand how the right cover for you could pay off your mortgage and cover other living expenses should the worst happen.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

How to use life insurance to cover a future Inheritance Tax bill for your family

The amount the government collects through Inheritance Tax (IHT) is on the rise, and freezes to allowances mean it’s expected to increase further. If your family could face a bill when you pass away, life insurance could provide a valuable way to cover the expense.

According to MoneyAge, the amount collected through IHT hit a record £7.5 billion in 2023/24.

An IHT bill could not only mean passing on less wealth to your loved ones, but it may be stressful too. The portion of your estate that exceeds thresholds could be liable for IHT at a standard rate of 40%, and your family might need to consider which assets to sell to cover the expense. 

Understanding whether IHT may be due on your estate could help you make provisions that will ease the burden for your family.

If the value of your estate exceeds £325,000, it could be liable for Inheritance Tax

IHT is paid if the value of your estate exceeds thresholds when you pass away.

In 2024/25, the nil-rate band is £325,000 – if the value of all your assets is below this threshold, no IHT will be due. In addition, many estates can use the residence nil-rate band, which is £175,000 in 2024/25 if your main home is passed on to direct descendants.

So, you can often pass on up to £500,000 before you need to consider IHT. If you’re planning with your spouse or civil partner, you can also pass on unused allowances to them.

Importantly, the nil-rate band and residence nil-rate band are frozen until 2028, which is predicted to lead to more estates becoming liable for IHT.

Indeed, the Institute for Fiscal Studies estimates that by 2032/33, 1 in 8 people will have IHT due either on their death or that of their partner. As a result, IHT revenues are predicted to double over the next decade. 

Life insurance can provide a useful way to pay Inheritance Tax

Life insurance won’t reduce how much IHT your estate is liable for. However, it could provide a straightforward way for your loved ones to pay the bill.

When you take out whole of life insurance, you’ll need to pay regular premiums to maintain the cover. When you pass away, a lump sum will be paid to your beneficiaries, which they can then use to pay IHT. It could mean your family doesn’t need to break up your estate or sell assets to settle the bill.

The cost of the premiums will depend on a variety of factors, including your age, health, and lifestyle. In addition, the level of cover you require will also affect the cost.

You can select the level of cover that suits your needs, so understanding the size of a potential IHT bill is important.

A good place to start is by assessing the value of your estate now. Your estate covers all your assets, from property and investments to material items.

You’ll then want to consider how the value of each asset could change during your lifetime. For example, the value of your property will likely rise.

If you’re not using savings and investments to supplement your retirement income, they could also increase in value over the long term. On the other hand, there may be assets you’ll deplete during your lifetime, such as your pension.

As a result, the potential size of an IHT bill could be difficult to calculate. A financial planner could help you get to grips with how the value of your estate might change in different scenarios so you can choose the right level of life insurance for you.  

You may want to place life insurance in a trust if it’s for Inheritance Tax purposes

If you’re considering using life insurance to provide your family with a way to pay a potential IHT bill, it’s sensible to place the life insurance in trust.

Using a trust means it sits outside of your estate and won’t be included when calculating how much IHT is due. If you didn’t take this step, the lump sum that the life insurance pays out might be included in your estate, which would lead to a larger IHT bill.

You can set up a trust yourself but they can be complex and there are several different types. Seeking the services of a legal professional could minimise the chance of mistakes occurring and ensure the trust you set up suits your purposes.

Get in touch to talk about your estate plan

Life insurance could provide your loved ones with a simple way to pay an IHT bill, but there may be other steps you can take as well. As part of an estate plan a financial planner would review your circumstances and goals to understand how you could pass on assets effectively, including steps that may reduce an IHT bill.

Please contact us to arrange a meeting to talk about your estate.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

Investment market update: June 2024

2024 is a historic election year – elections will take place in 50 countries. More than 2 billion voters will head to the polls in countries including the UK, US, France, and South Africa throughout the year. Political uncertainty can affect investment markets and there was evidence of this in June.

During market volatility, remember that markets have, historically, recovered in the longer term. And, for most investors, sticking to their long-term investment strategy makes financial sense.

Read on to find out what affected investment markets around the world in June 2024.

UK

Despite hopes that the UK economy had turned a corner when it exited a recession in the first quarter of 2024, GDP figures were disappointing in April. Official figures show the economy flatlined when compared to a month earlier.

Yet, the Bank of England (BoE) remains optimistic. The central bank raised its second-quarter growth forecast to 0.5% after it revised upwards its May 2024 prediction of 0.2%.

There was further good news for the BoE too – UK inflation fell to its official target of 2% in the 12 months to May 2024 for the first time since 2021. The news led to speculation that the bank would cut its base interest rate, but the Monetary Policy Committee opted to hold it at 5.25%.

The positive inflation data sets the stage for a rate cut later this year, with the BoE saying it will keep interest rates “under review”.

As inflation pressures started to ease, figures from the Insolvency Service suggest fewer businesses are failing. The number of firms that became insolvent fell by 4% in May when compared to a month earlier. Even so, the number is 3% higher when compared to the same period in 2023.

Readings from the S&P Global Purchasing Managers’ Index (PMI), which measures business conditions, are also positive. In May:

· UK factories returned to growth with the most rapid expansion of output in two years. The boost was mainly supported by domestic demand, as new export orders fell.

· The service sector lost momentum but still posted growth. The slower pace is partly due to new orders easing when compared to the 11-month high recorded in April.

Uncertainty as UK political leaders campaigned ahead of the 4 July 2024 general election was partly linked to the FTSE 100 index, which includes the largest 100 companies listed on the London Stock Exchange, falling by 0.4% on 4 June.

Amid political turmoil in France, London regained its crown as Europe’s biggest stock market, which Paris has held for the last two years. According to Bloomberg, as of 17 June, stocks in the UK were collectively worth $3.18 trillion (£2.52 trillion) compared to France’s $3.13 trillion (£2.48 trillion) valuation. 

Europe

At the start of the month, the European Central Bank (ECB) slashed its three key interest rates by 25 basis points in the first cut since the start of the Covid-19 pandemic.

Yet, figures released by Eurostat just two weeks later showed inflation was 2.6% in the year to May 2024 across the eurozone, up from 2.4% in April. The news prompted some commentators to speculate the cut to interest rates had been made too soon.

PMI data was positive in the eurozone as business activity grew at the fastest rate this year. Of the top four economies in the bloc, only France contracted slightly, while Germany, Spain, and Italy posted growth.

President of France Emmanuel Macron called a snap election, which is set to be held between 30 June and 7 July. The election has added to the political uncertainty affecting markets.

Indeed, on 10 June, France’s CAC index, which is comprised of 40 of the most prominent listed companies in the country, was down 2%. The effects were felt in other stock markets too, with Germany’s DAX falling 0.9% and Italy’s FTSE MIB losing 0.95%.

In response to the snap election, credit ratings agency Moody’s issued France with a credit warning, stating there was an increased risk to “fiscal consolidation”. Citigroup also downgraded its rating for European stocks to neutral from overweight due to “heightened political risks”.

US

The New York Stock Exchange got off to a rocky start in June. On 3 June, a technical issue led to large fluctuations in the listed prices of certain stocks. Warren Buffett’s Berkshire Hathaway was affected by the glitch, which suggested shares had fallen in value by 99%. Fortunately, the issue was resolved within an hour.

The rate of inflation fell to 3.3% in May 2024 but remains above the Federal Reserve’s target of 2%.

The drop in inflation led to a boost for Wall Street. On 12 June, both the S&P 500 index, which includes 500 of the largest companies listed in stock exchanges in the US, and tech-focused index Nasdaq opened at all-time highs.

Figures from the US Bureau of Labor Statistics indicated that businesses are feeling confident about their future. 272,000 jobs were added in May, far higher than the 185,000 Wall Street has forecast. Yet, unemployment also increased slightly to 4%.

Tesla shareholders voted in favour of CEO Elon Musk’s huge $56 billion (£44 billion) pay package – the largest corporate pay package in US history by a substantial margin. The results of the annual general meeting led to Tesla shares rising by around 6.6%, which helped recover some of the 28% losses they’ve suffered so far this year.

Asia

Moody’s raised China’s growth forecast to 4.5%, up from 4%. While growth of 4.5% would be great news in many developed countries, it would mark a slowdown for China, which saw its GDP rise by 5.2% in 2023. 

However, signs of a trade war starting between China and the EU loomed and could dampen growth expectations.

The EU notified China that it intended to impose tariffs of up to 38% on imports of Chinese electric vehicles. The move would trigger duties of more than €2 billion (£1.69 billion) a year. The announcement followed an investigation into alleged unfair state subsidies and similar tariff increases from the US earlier this year.

In retaliation, China opened an anti-dumping investigation into imported pork and its by-products from the EU. China is the EU’s largest overseas market for pork, which was worth $1.8 billion (£1.42 billion) in 2023.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Investment market update: May 2024

On the back of data showing some countries have exited recessions at the end of the first quarter of 2024 and inflation falling, several market indexes reached record highs in May. Read on to find out what else may have affected the markets and your investment portfolio. 

UK

Dominating headlines towards the end of May was prime minister Rishi Sunak calling a general election. Sunak made the seemingly snap decision following positive inflation news despite polls suggesting the Conservative government is trailing the Labour Party.

The general election will take place on Thursday 4 July. The uncertainty over the next few weeks could lead to markets being bumpy as they react to the latest information and assumptions. Remember, ups and downs are a part of investing and it’s important to focus on your long-term goals during periods of volatility. 

The latest figures from the Office for National Statistics (ONS) show the UK is nearing the Bank of England’s (BoE) 2% inflation target. In the 12 months to April 2024, inflation was 2.3%. 

Sunak said the data was proof the Conservative’s plan was working and “brighter days are ahead”. In response, the Labour Party accused the government of celebrating a “tone-deaf victory lap”.

The BoE voted to hold its base interest rate at 5.25%. Borrowers keen for rates to start falling could receive some good news this year though. BoE governor Andrew Bailey said a cut will likely come in the coming quarters if inflation continues to fall, and he hinted the Bank could make cuts faster than the market expects. 

Data on the economy was positive too. After the UK fell into a technical recession – defined as two consecutive quarters of negative growth – at the end of 2023, ONS figures confirm the UK economy grew in the first quarter of 2024. GDP increased by 0.4% in March 2024, following growth of 0.3% and 0.2% in January and February respectively. 

Yet, the Organisation for Economic Co-operation and Development warned the UK would have the weakest growth across G7 countries in 2025. The organisation predicts GDP will rise by just 1% next year. 

The latest readings from the S&P Global’s Purchasing Managers’ Index (PMI) support the ONS GDP data. PMI data provides an indicator of business conditions, such as output and new orders.

In April 2024, the service sector posted its fastest business activity growth in almost a year. The sector makes up around three-quarters of the UK economy, so strong growth will have helped pull the UK out of the recession quickly.

There was good news in the construction sector as well, with the PMI information showing growth reached a 14-month high. However, the data indicates the manufacturing sector contracted in April. One of the challenges facing manufacturing firms was purchasing costs rising for four consecutive months. 

May was an excellent month for the FTSE 100 – an index of the 100 largest companies on the London Stock Exchange. It reached record highs several times throughout the month as markets reacted to speculation that interest rates would fall. 

On 15 May, the index jumped by around 0.5% to reach 8,474 points. The top riser was credit data firm Experian after it reported growth at the top end of their expectations for the last financial year, which led to shares rising by more than 8%. 

Europe

The wider continent fared similarly to the UK. 

Eurostat confirmed that the eurozone is out of a recession. The economy shrank by 0.1% in the last two quarters of 2023 but posted growth of 0.3% in the first quarter of 2024. Major economies, including Germany, France, Spain, and Italy, grew in the first three months of the year. 

However, the European Commission warned external factors could place economic growth at risk. These risks include ongoing Ukraine-Russia and Israel-Gaza conflicts. 

In the eurozone, inflation was stable at 2.4% in the year to April 2024. While the European Central Bank has also yet to cut interest rates, it’s expected that it may do so as early as June if inflation falls. 

European markets were also influenced by expectations that an interest rate cut could be imminent. Sliding oil prices led to modest gains on 8 May when France’s CAC was up 0.6% and Germany’s DAX increased by 0.1%. 

US

Figures from the US show inflation fell to 3.4% in the year to April 2024. It led to Wall Street reaching a record high on 15 May as both the S&P 500 and the tech-focused Nasdaq index rose.

Data could suggest that US business confidence is falling after fewer jobs were added to the US economy than expected in April. Businesses added around 175,000 jobs compared to the 243,000 economists had predicted. Unemployment also increased slightly from 3.8% to 3.9%, which had a knock-on effect on the power of the dollar. 

The Dow Jones index, which contains 30 major US companies, hit a milestone this month. The index reached 40,000 points for the first time on 16 May. The biggest riser was retailer Walmart, which was up 6%. 

Entertainment giant Disney also hit a landmark in May – its streaming platform Disney+ turned a profit for the first time since it launched four years ago. Despite the news, Disney’s shares dropped by more than 5% in pre-market trading on 7 May as results have still fallen short of expectations. 

Asia

On 9 May, encouraging trade data from China, which showed both exports and imports have returned to growth, boosted markets around the world. 

However, China could face headwinds. After speculation over the last few months that the US would introduce trade tariffs, US president Joe Biden announced new tariffs would come into force on 1 August 2024.

There will be a 100% tariff on Chinese-made electric vehicles. Tariffs will also increase for other items, including lithium batteries, critical minerals, solar cells, and semiconductors.

The US said the tariff would help stop subsidised Chinese goods in the US market from stifling the growth of the American green technology sector. China responded by saying the move undermined fair trade and it’s US consumers who would bear the brunt of the additional costs.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.