Coming! Ready or not! Base rate rise in 2014?

It was great to speak to Danny Pike on BBC Surrey and BBC Sussex last week about the Governor of the Bank of England, Mark Carney's, speech at Mansion House in London on the significant possibility that the Base Rate will rise from its current historic level of 0.5% pa. You can hear this radio slot here:

The issue is not that rates will rise, but that we may not see the old 'norm' of 5.00% pa -the Monetary Policy Committee believe 2.5% to 3.00% pa in around 2/3 years’ time is more likely. There is no guarantee where they will settle in the future and at what rate. The only certainty is the uncertainty, but the trend is certainly pointing up. The strength of Sterling as a currency jumped in the aftermath of the speech. I think rates will now rise this year.

It was also good to discuss the positive economic data available which has moved faster than anticipated to put pressure on the Bank of England to delve into its tool box of instruments to keep the UK economy from overheating.

Data recently available provides the following examples:

• Unemployment falling to 6.6% (2.16M, Source: BBC 11 June 2014)
• House price indices rising quickly
• Positive and upgraded GDP figures (Gross Domestic Product/ effectively what we produce as a nation in a period)
• Sterling strong
• Manufacturing increasing well
• Stock markets at near highs
• Inflation falling

These are only examples and individually may not have significant impact. However, as a group together, they have all moved positively and at a pace unexpected by some. Obviously, past performance is not an indication that these will continue or improve further.

The impact of this possible change is likely to be felt by individuals and businesses alike. For companies, they might find their product costs for export increase, along with any borrowing costs they may have.

For individuals, the impact will have different effects on borrowers and savers.

For borrowers, the cost of their finance is likely to increase if not on a fixed rate arrangement. They should prepare and interrogate their household budget, adjusting costs now to tuck away a buffer against these increased costs where possible.

For savers, their deposit rate 'drought ' may be coming to an end. This may be dependent on banks and building societies passing these future rate rises on to customers, although I am sure they will not hesitate for borrowers. As I noted in my radio interview, the currently attractive Pensioner Bond offering at the beginning of 2015 looks good now. This view may change in time as rates rise steadily.

The message from this blog is be ready, however you could be affected. Reviewing your financial planning now, over the summer of 2014, could well be a wise use of time to prepare for the changes ahead.

The Chapters teams in Guildford and Woking are well placed to advise you on savings and financial planning for your finances. No individual advice is provided during the course of this Blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters team in either Guildford or Woking.

Keith Churchouse, FPFS
Chartered Financial Planner
ISO22222 Certified Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

New tax year, new investment allocations?

We have now moved into the new tax year 2014/2015 and many clients have already arranged to use up their full ISA allowance of £11,880 with the plan to increase this to the increased maximum of £15,000 from July 2014. Some refer to the investment opportunity presented by this increase in the ISA allowance, along with greater investment flexibility, as the New ISA (NISA). The changes are welcome and some prefer the flexibility of ISAs to save for their retirement, either by using stocks and shares options or cash ISAs or a combination of both, now being able to switch between the two options to suit their needs and attitude to investment risk.

Having recently met with a Bank of England representative, we anticipate the Bank of England base rate (currently 0.5%) to start to rise from around the beginning of 2015.

In past blogs, Chapters Financial has detailed its views on investment allocations and our current preferences. We regularly review our 'house' views on investment areas and classes, maintaining a quarterly Investment Committee to give continuity to our process and client recommendations. You may want to look at our Investment Risk Scale to consider your individual attitude to investment risk.

Current views are as follows:

Positive Allocations
UK Equity Income
UK Equity
US Equity Income
US Equity
Commercial Property  

Neutral Allocations 
In a change to previous blogs, we continue to watch Europe as an investment area, although are currently not actively recommending this area.*

Corporate Bonds  

Negative Allocations
BRICs ( Brazil, Russia, India, China)
* Europe ( see notes above)

Other investment areas are available and will be considered to meet our client requirements.

Past performance is not a guarantee of future performance and changing fund/ asset allocations does not guarantee an increase in performance.

No individual advice has been provided during the course of this blog. If you would like financial advice on the allocation of your funds/ investment strategy, then please contact the Chapters Financial team in Woking (01483 330800) or Guildford (01483 578800).  

Keith Churchouse BA Hons FPFS 
Director, Chapters Financial Limited 
Chartered Financial Planner 
Certified Financial Planner 
ISO22222 Personal Financial Planner 

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Where did 2013 go?

Our busiest months of the trading year are April/May and November. This has always been the case throughout my nearly 30 years in financial services. Many can understand the April/May date because of the end of the tax year (05^th April) and all this involves, including pension and ISA contributions. The November uplift is usually a surprise and this is because many finalise their financial planning at the end of the year before the festive season starts. Almost a final catch up before the year closes. From an economic viewpoint, it has been a significant year.

With the FTSE100 starting the year at 5,897 points (approx.), my open year prediction was that we would end the year with a starting digit of 7,XXX?. It looks like I might have to temper this prediction. (Past performance is not a guarantee of future performance). The FTSE100 is not an indicator of the health of the economy though and there are many other important and relevant economic factors to consider, examples of which might be: 

•  Foreign investment money stoking a possibly overheating London Property market is filtering through to the rest of the UK.
• The Government’s funding initiative of the 'HomeBuy' scheme, generating greater flexibility for usually First Time Buyers (FTB) to enter the property market. With recent reports that the average FTB was entering the property market in their 30's, action had to be taken.
• Cash deposit yields falling ever further with now confirmed low rates (through ‘Forward Guidance’) from the dynamic Canadian Banker that heads the Bank of England (BoE). Bank Base Rate has remained at 0.5% pa throughout the year to date. 
• Some banks and lenders being more approachable for SME/ Small Business finance.
• Growing Building/ construction starts ups helping with the stubbornly high unemployment data (October 2013 2.47M), which is starting to show falls (possibly quicker than Mr Carney thought).
• Largest number of Initial Public Offerings (IPO’s) since the start of the recession on London.
• Inflation (Consumer Prices Index/CPI) remaining above the current BoE target of 2.00% pa, at 2.20% (October 2013)   

Be under no illusion, our economic market has changed and I believe is in the final throws of shaking off the shackles of recession. This is a changed beast and is going to move forward, I think quicker than many of us expect. As you have seen in our previous November Blog, we have also seen the implementation of the Retail Distribution Review (RDR) in 2013 which, for some, has been a welcome change to the delivery of financial advice to the public in the UK. 

I hope, like Chapters Financial Limited, that you found 2013 a positive year for your financial planning. The flow of economics points to 2014 being a positive year, although I am sure there will be volatility along the way, and a positive outcome is not guaranteed. However, taking high quality financial planning advice throughout the year is worthwhile to ensure that you make the best of the economic climate, whatever it transpires to be. 

If you would like to receive further information with regards to your own individual situation and circumstances, then please contact the team, either in Guildford or Woking.

Keith Churchouse FPFS
Director
ISO22222 Personal Financial Planner
Chartered Financial Planner