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Views on the News

24 January 2022

4 minute read

A weekly round-up of the leading business, personal finance, investment, savings and pensions stories in the press from the past week, including analysis and opinion from our experts.

Who's it for? All investors

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

What you’ll learn:

  • Retail sales slump in December
  • US and Russia in last-ditch talks over Ukraine crisis
  • Investors save millions in tax by pouring cash into fledgling stocks.

Retail sales slump in December

UK retail sales sank 3.7% in December from the month before as the spread of Omicron deterred shoppers from visiting the High Street, according to data from the Office for National Statistics.

Analysts say that a combination of fast-rising inflation led by surging energy prices, the prospect of higher interest rates, and planned tax rises in April may dent the appetite of consumers to keep on spending in 2022.

However, with encouraging signs that the Omicron outbreak may have turned a corner and the government's Plan B restrictions due to be lifted this week, some argue that retail sales may see a recovery in the coming months1.

Our view: The signal for the short-term outlook for the UK economy is obscured by the rapidly passing Omicron wave. Nonetheless, incoming data paints a challenging picture. Inflation remains hotter than forecast and the latest employment data were more mixed than hoped for. The Bank of England is expected to be one of the more active central banks in the developed world this year in its attempts to haul inflation back to target. The winter of discontent is unfortunately not done with us just yet. (Will Hobbs, CIO)

US and Russia in last-ditch talks over Ukraine crisis

US Secretary of State, Antony Blinken, and Russian Foreign Minister, Sergei Lavrov, met for talks in Geneva on Friday amid mounting fears that Russia could be about to invade Ukraine. Mr Blinken warned his Russian counterpart of a "united, swift, and severe" response if Russia did take that step.

Russia has denied that it is preparing an invasion but has amassed more than 100,000 troops near to Ukraine, and demanded that the West halts NATO expansion into eastern Europe.

The White House insists that Russia cannot veto the accession of willing states to NATO. The US has agreed to provide written responses to Moscow’s demands and is ready for dialogue over arms control, the transparency of military exercises, and cyberattacks2.

Our view: The guiding principle for investors here should be that when the main protagonists themselves don’t know what comes next, we should be wary of the legion of media armchair generals happy to authoritatively second guess them.

There is some cushion in our multi-asset class funds and portfolios in the form of the commodity exposure we own on your behalf, both direct and indirect. This could certainly develop into another debilitating humanitarian crisis in a world surely replete with tragedy and suffering.

Optimists will point to some evidence of an apparent softening of Russia’s demands, particularly with regards to NATO troop positioning alongside an offer to keep any American concessions behind closed doors. However, this remains a highly combustible and unpredictable situation, where strong views should be taken as a sign to tune out not tune in. (Will Hobbs, CIO)

Investors save millions in tax by pouring cash into fledgling stocks

Investors have put a record £580m into venture capital trusts (VCTs) so far this tax year, more than double the £280m they had invested at this point in 2021.

Demand for VCTs is booming as investors hunt out ways to reduce their tax bills, with the Government bringing in higher dividend taxes this year and failing to increase pension and ISA allowances in line with inflation.

Taxes on dividends will rise by 1.25% in April, to 8.75% for basic-rate income tax payers and 33.75% for higher-rate payers.

VCTs, which invest in fledgling British businesses, pay out some of their returns to investors through dividends, which are free of tax, and also come with 30% income tax relief if held for five years. Capital gains from VCTs are also tax free and there is a £200,000 investment limit3.

Our view: This news report should be a ‘call to action’ to many clients. It is commonly accepted that any investor should have a broad spread of investments to try and be as diverse as possible. Ideally, to also hold assets that are not overly correlated to each other. VCTs are a good example of that and whilst they certainly sit at the higher end of risk, they can offer attractive tax benefits together with strong potential returns from the growth of young British businesses.

There are now seven VCT-backed companies, nicknamed 'unicorns' that have reached $1bn (£730m) valuations. These include property website Zoopla, fashion retailer Depop, car firm Cazoo and recipe box provider Gousto.

Younger fledgling companies can be hard to access for the average investor and so VCTs can give meaningful exposure in a very tax favoured environment. As usual, we would encourage anybody interested in this area to seek professional planning advice from a Chartered Financial Planner, to ensure the appropriate suitability. Barclays has access to some of the most highly regarded VCTs and they could well be an attractive addition to many clients’ portfolios. (Andrew Brown, Wealth Planner)

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

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