31 Dec New Year, New World?
It’s a new year so in the world of financial planning, are we looking at a new world in 2017?
The Chancellor’s Autumn Statement in November didn’t contain any earth shattering surprises so in many ways 2017 looks like more of the same. As usual however, there are a few pointers to look out for in the year ahead.
Will inflation return after a few years away? Sterling has declined against the US dollar and Euro since the Brexit vote. This in turn drives up the cost of imports to the UK. These higher costs might feed through to higher consumer prices, driving up inflation.
If inflation becomes a problem for the economy then the Bank of England may consider increasing interest rates to control it. Higher interest rates may be good for savers but not so good for investors in other fixed interest assets such as corporate bonds and gilts.
Weaker sterling can be good for UK firms who generate some of their business overseas as this can increase the value of their foreign earnings and assets. This can be reflected in their stock market valuations, so weaker Sterling might not be good for your holiday cash but can increase the value of some share-based portfolios.
Keeping your investments under review and maintaining the focus on the long term goals, as always, remains key to successful investment.
ISA allowance increase
ISA investment allowances are increasing to £20,000 from April 2017. Although this was expected, it is something to bear in mind when considering investing any available cash. ISAs can be very useful in a portfolio since they are free of income tax and capital gains tax. This means that if you make a change to your portfolio, perhaps because of changing interest rates, you can buy and sell assets without any tax liabilities being triggered.
New NS&I bond
National Savings and Investments are due to release a new three year bond in April for cash savers to help offset the effect of low interest rates. The intention is to offer interest at around 2.2% and the final rate will be confirmed once NS&I have been able to assess demand. This rate looks to be higher than many commercial providers.
Pension freedom changes
Pension freedom has allowed many people to access the capital in their pension funds in a manner that might suit their own circumstances, but there is a new potential drawback.
If drawing a high income or a taxable lump sum from your fund, you can become subject to the Money Purchase Annual Allowance which can limit future pension contributions. This limit for new contributions was £10,000 each year but after the Autumn Statement this limit has been reduced to £4,000.