The Week That Was For The UK

When the Chancellor Kwasi Kwarteng presented what in the eyes of the markets was an unfunded Budget at the end of September, the UK entered into a period of uncertainty to rival the start of COVID-19 and the EU Referendum.

So, What Happened, And Why?

Essentially, we saw a lack of communication between various key figures; the new administration, the Prime Minister Liz Truss, the Chancellor, and the Bank of England.  The Chancellor’s ‘mini-budget’ followed shortly after the announcement of a support package to tackle the rising energy prices which are in turn fuelling the UK’s cost of living crisis, both of which came with seemingly little in the way of an explanation on how they would be paid for. Markets don’t like uncertainty and reacted accordingly leading to the pound falling as low as 1.06 to the dollar.

BOE Reaction

Just as the Bank of England were set to commence their Quantitative Easing reversal program, otherwise known as Quantitative Tightening, the devalued pound had led to many pensions schemes facing insolvency.  As such they began purchasing government bonds rather than selling off assets as planned.

What Happens Next?

Of course, we can’t predict what’s going to happen but it’s safe to say markets will be eagerly waiting to see what the Chancellor and the Bank do next. Dates to keep an eye out for are; 21st November – the budget, and the next monetary policy meeting on the 3rd November when we will hear if the base rate is to rise for an 8th consecutive month.

With all that said, it’s worth noting that since the initial slump of the pound, we have seen GBP rise back up to its pre mini budget levels and witnessed various global stock markets pick up from the lows of last week.

Are We Heading For A Recession?

There are various factors which indicate a recession, but according to the general definition of two constitutive quarters of negative GDP the UK and the US are technically in a recession. More pertinent questions to be asking as an investor however is - can we remain calm whilst we ride out these market fluctuations and how long will it last?

History Of Stock Market Crashes

We encourage all investors to focus on the long-term, but we know some still focus on the here-and-now, It’s just human nature. We can’t learn much from the present though, but we can learn a lot from the past. So, let’s see how things turned out after previous stock market shocks.

The table below shows the biggest drops since the start of the seventies. They nearly all follow a pattern starting with a significant fall, followed by a recovery and a healthy gain for those who remained invested ten years on from the start of the trouble. Although the falls, recoveries and gains all vary, the point is things never turned out as badly as they felt at the time.

Time To Jump?

Time in the market, or in other words the longer you stay invested, is one of the most powerful things you can do to boost your investment returns. Surely timing the market – jumping out before a drop and jumping back in as it recovers – is going to improve your returns too though? Sounds sensible enough, but actually getting your timing right and getting it right consistently is extremely difficult.

You could find you were too early, too late or just wrong and market jitters never actually led to bigger falls. The same goes for trying to time a recovery. Many of the most skilled and seasoned investment professionals don’t even try to time the markets. Our recommendation is not to try it either – you could end up worse off than doing nothing at all.

What Does This Mean For My Mortgage?

If you are concerned about your fixed rate ending or your current variable rate, we would suggest speaking with a member of our mortgage team who will be able to give you a better understanding of rates and options available to you. Please contact mortgages@skyboundwealth.co.uk

Final Thoughts

Markets will rise and fall. As we’ve seen throughout history, often the best thing you can do in the face of market turbulence is not much at all. That would be a bit like a dog chasing its tail – you’ll always be one step behind where you need to be for it to work!

If you have further questions, please contact your adviser in the first instance.