Investment Thoughts and IdeasPersonal Finance & InvestmentResidential Real EstateUK HeadlinesUK Property Investment

UK Investment Markets: Weekly Update – July 22nd 2019

Government Borrowing In June Highest Since 2015

Public sector net borrowing rose sharply in June because of higher debt interest payments and rising spending on services, figures show. According to the Office of National Statistics (ONS), public borrowing totalled £7.2bn, up from £3.3bn in June 2018, to become the highest borrowing figure for the month since 2015.

Analysts said the figures would add to the uncertainty surrounding the UK economy in the run-up to Brexit and the imminent change of prime minister. “The outlook for fiscal policy was already uncertain because of the extension of Brexit until 31 October, in addition to the imminent change of Conservative leader and prime minister,” said the EY Item Club.

“Much will depend on whether the economy can shrug off its current weakness, as well as on Brexit developments. It will also be influenced by any changes to fiscal policy by the new prime minister and chancellor.”

Spending on Goods and Services Rising

Last month, the government took in £800m more in tax and National Insurance contributions than a year previously, but debt repayments rose by £2.1bn. The ONS said there was “a notable increase” in expenditure on goods and services of £1.2bn, while the UK’s contribution to the EU increased by £400m compared with June 2018.

In the three months to June, borrowing was 33% higher than the same period in 2018 at £17.9bn. Public sector net debt rose to £1.81 trillion, or 83.1% of gross domestic product (GDP).

The latest figures, which show public spending running ahead of forecasts, come as concerns grow over the state of the UK economy in the run-up to Brexit. The most recent GDP figures showed the economy grew by 0.3% in May after shrinking 0.4% in April.

However, economists say that June’s growth figures will have to be strong to avoid contraction in the second quarter. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said borrowing would probably just stay within the rules set out by the current Chancellor, Philip Hammond.

“His successor, however, looks highly likely to tear up the existing rules, setting the stage for a giveaway Budget in the autumn and for fiscal policy to materially boost GDP growth next year,” he added. “The Conservatives are desperate to improve their poll rating and public support for austerity has crumbled, so a fiscal boost is coming.”

On Thursday, the Office for Budget Responsibility said borrowing could rise by £30bn a year in 2020-21 if the UK leaves the EU without a transition deal on 31 October. The OBR was created in 2010 to give independent analysis of the UK’s public finances. In its first assessment of the economic impact of a no-deal scenario, the OBR used IMF analysis that shows the UK economy could contract by 2% in 2020 before recovering in 2021.

Sterling hits lows of 2019

Last week Sterling hit its lowest point against the Euro since the turn of the New Year. With sentiment heavily against the pound, even moderately positive data midweek in the UK with wage growth posting a higher figure of 3.4% from the previous reading of 3.6% and the unemployment rate remaining at 3.8% Sterling still could not gain any glimpse of recovery from its losses at the open of business on Monday.

As the week drew to a close all signs were that currency markets would follow suit, however with what is likely to be a pivotal week by all things politically, it is to be expected that the market is to remain highly volatile when trading opens today.

The conservative leadership contest between Boris Johnson and Jeremy Hunt is set to come to its conclusion on Wednesday. There is potential that various interviews may take place and also leadership surveys may be published in the news which would more than likely have an effect on Sterling’s performance against the majors.

For those looking to purchase sterling back, current low rates are welcomed and it is recommended you take advantage while they are here. Although, the road ahead is still set to be a bumpy one, it’s likely that the path will continue to be flat at least for the next few weeks, so these current levels could be sitting at the better side of low.

How to Keep your Savings and Investments Safe Whatever Happens

Investor Live was founded with the mission of providing information and resources to help normal people save and invest their money wisely. Retail investors are fortunate to have the opportunity to invest in big assets without taking all the risk on themselves as sole owners.

We always recommend products that give you fixed returns which is never more important than when financial markets are shaky. Although you won’t earn the returns you will for a high-risk opportunity, you at least know you are not likely to lose all your money.

Preferably, you want to keep your money locked into an instrument that is going to give you exactly what you calculate it to when you invest your money. Products with terms of around 12-24 months that have underlying real estate assets are the best bet for keeping your hard-earned capital as safe as possible as the post-Brexit dust settles, (God willing).

About the Author

Amanda Wright is a former risk analyst at Bankers Trust, with specific experience of mergers & acquisitions and corporate finance. As a contributor to Investor Live, Amanda provides valuable insights into the technicalities of fundamental analysis in a way that is easy to understand, to provide retail investors with the tools to make considered investment choices.