Growth is the Key

Tariffs are here to stay but it would appear not at the levels originally announced with, no doubt, continuing renegotiations ahead. Tariffs are a way of raising tax revenue for Central Governments but their instigation comes with a degree of concern over the impact they will have on global growth. A simple but emotive example for all parents and grandparents but particularly those in America is the cost of child car seats, almost all of which are manufactured in China. With swinging tariffs on items such as these and families having to (as opposed to choosing to) purchase child car seats to transport their offspring they will find themselves with less disposable income-impacting on their other spending and therefore growth. Tariffs should benefit the Treasury departments of Central Governments but on the whole they are not good for global trade and growth.

All Governments need and want growth

Growth is the key as it is through growth that Central Governments really increase their respective incomes allowing them to fund their spending plans or reduce more obvious headline taxes such as Income Tax or VAT in an effort to engender voters’ goodwill, hunting for continued political terms in office. All political parties take credit for economic growth even if it has arisen not as a result of their policies but despite them! All Governments, whatever their political colour need and want growth and our current Government is treading a very fine line in an effort to appease the factions within it and also the voters that gave it such a large majority this time last year. It won’t be easy. Our Chancellor has promised not to raise Income Tax rates or employees’ National Insurance contributions and confirmed a desire not to raise Capital Gains Tax. Allied to the markets’ poor reaction to excessive borrowing but against a desire to spend money on benefits, the State Pension triple lock etc whilst promoting economic growth the UK Government may well struggle to achieve all its aims. In simple terms, something has to give. The increase in employers’ National Insurance contributions earlier this year has provided additional revenue to the Treasury but at what expense? Businesses have either passed on the increase in their outgoings to their customers (i.e. higher prices) or chosen not to recruit additional workers in an effort to balance their books. Neither of these scenarios is good news for growth.

Inflation remains stubbornly higher than we would like

The rise in employers’ National Insurance contributions was predicted
to have an impact on inflation and the latest figures show that it remains stubbornly higher than we would like. Economics is always a balance of probable outcomes and the Bank of England will need to monitor matters very closely as they make decisions about interest rates. The expectation continues to be that inflation and therefore interest rates will fall towards the end of the year but any more increases in inflation like last month’s will question the direction of interest rates. This makes predicting the markets’ movements over the next 3-6 months very difficult and reinforces again why your diversified portfolios provide balance and steadier returns.

Global economic matters “settling down”

Overall, at this stage in the economic cycle we would expect decent returns from our invested moneys and in the year to date this has been achieved. Although never linear, we do hope for a continued increase in investment values in the second half of the year. There is a feeling of global economic matters “settling down” over the summer while negotiations (not just tariffs) continue behind the scenes. In years past, stockbrokers used to suggest that they “sell in May and go away” to return in the Autumn and start managing money again at that point. 2025 has the potential to echo this and having made decent returns in the first half of the year it could well be that we have a quiet couple of months with markets picking up again from September onwards. The diversity within your portfolios means that we should still see an improvement in values as the underlying holdings in shares will continue to benefit from any dividends payable and the underlying property holdings will continue to receive their rents. Even in what might be quieter times, your funds can still turn a reasonable profit from the underlying income they receive. Geopolitical concerns aside, we see the potential for a quieter but still productive quarter for your portfolios however we will maintain our constant watch on markets and the specific fund managers and have no hesitation in recommending action should it be needed.

This article is the opinion of David Wheildon