The well-worn phrase about a week being a long time in politics is attributed to Harold Wilson, British prime minister in the 1960s and 1970s. I wonder what he would have made of this week? And we still have another day to go.
Even in this age of 24/7 news channels, it’s hard to keep up with the political drama in Westminster. As media channels announce every twist and turn of the current political turmoil as ‘breaking news’, it’s no wonder words such as ‘wellness’ and ‘mindfulness’ (as well as ‘prorogue’), are now part of our vocabulary. Our peace is constantly interrupted with news of yet more uncertainty.
So, cutting through the noise, as investors, what do we need to be aware of this week?
Firstly, Boris Johnson suffered a double defeat in the House of Commons last night as MPs backed legislation to stop Britain leaving the EU without a deal and then voted against the prime minister’s motion to hold an early general election on 15 October.
This doesn’t mean we won’t be going to the polls again soon. It’s just not now, as opposition leaders said they would not agree to an early election until the legislation to stop a no-deal exit on 31 October was in place.
Secondly, the new chancellor Sajiv Javid declared the end of austerity in his first spending review. Criticised by Labour as “grubby electioneering”, Mr Javid announced plans to raise spending across all government departments, including an extra £6.2bn for the NHS next year, £750m for 20,000 police officers and an extra £7.1bn for schools over the next three years.
Putting the politics aside, this spending spree will be welcomed by many households working in the public sector, who have endured years of austerity since the financial crisis. With no sign of interest rates rising in the near future, the chancellor has cited the low cost of borrowing as a justification for borrowing more to fund this expansion of the state.
Thirdly, and somewhat lost in all the noise from Westminster, over in Threadneedle Street, Bank of England Governor Mark Carney said a no-deal exit from the EU would probably see the economy shrink by less than previously estimated. He told the Treasury Select Committee that a no-deal Brexit would be less severe than first thought. Last November the Bank warned that a disorderly Brexit could wipe about 8% off GDP under its worst-case scenario. However, that estimate has now been adjusted to 5.5%.
The impact on food prices will also be less on consumers than previously estimated. In November a weaker pound and tariff costs were assumed at worst to amount to a 10% rise in food costs, this may now be 5-6%.
He attributed the more favourable numbers to better border preparations, a temporary deal for financial services companies to access UK markets, and a deal on the market for financial insurance products.
So, as investors how should we respond to this latest barrage of news, with an election due sometime around the corner?
Maybe it’s just keep calm and carry on. When the outlook looks uncertain it’s easy to make knee-jerk reactions based on the latest scary headlines, but often the best investment decisions are made once the emotions are taken out of the decision.
All investments should be made taking a long-term view as they’ll always be some bumps along the way. Investments are risky by their very nature, that’s why they have the potential to perform better than safer, more guaranteed investments like a cash savings account.
There are two easy ways you can take the emotions out of your decision making. One is to invest in stages with a regular savings plan, where your investment is drip-fed into the stock market on a set day each month, irrespective of the breaking news being reported that day.
The other is to review your investments on a set day each year to make sure they’re in line with your long-term goals. This could be the 1st January, or your birthday or an anniversary. It’s one way you can introduce a little control and some good discipline to your investing behaviour when everything else around you appears to be out of control.
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Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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