Published: 15 January 2019
From Brexit, trade wars and the US midterms to riots in Paris and populist election victories, the past 12 months have been eventful.
Markets were volatile and began to fall in value towards the end of the year, largely due to warnings of a global economic growth slowdown and the prospect of US interest rates continuing to rise1.
As we enter 2019, the biggest question for investors may be whether we are now entering a new phase in the economic cycle; a contraction phase, bringing an end to the decade-long bull market we have been in since the 2008 financial crisis.
While investments, as well as economic cycles, can go down as well as up and you may get back less than you put in, it’s still generally accepted wisdom that investing may be most likely to help you meet longer-term financial goals – that’s those with a time horizon of 5 to 10 years or more.
How you respond to short-term events that impact investment markets within that time will depend on your personal circumstances. The key for many is to avoid being distracted but also not turning a blind eye.
Having an awareness of the broader financial environment and what that may mean for your longer-term plans makes sense if you are looking to make the most of your money. So here we highlight a few key areas that UK investors may want to keep an eye on in 2019.
Developments over the coming year are likely to be closely linked to whatever shape the UK’s relationship with the EU takes after the scheduled withdrawal from the union on 29 March.
Consumer Price Inflation (CPI) remained stubbornly above the Bank of England’s 2% target throughout 2018, though it didn’t return to the high of 3.1%, posted in November 20172.
Interest rates rose to 0.75% in August, the highest level in nearly a decade, and the Bank’s forecasts point to another increase in mid-2019 - provided there is a smooth Brexit transition - before edging up to around 1.4% at the end of 20213.
In its economic scenario setting for a potential no-deal Brexit, the Bank of England suggested that inflation could jump to 6.5%, making further interest rate increases highly likely4. The Bank also said a no-deal Brexit could cause the UK economy to contract by around 8% in the immediate aftermath, with house prices potentially falling by nearly a third and the pound potentially losing a quarter of its value5.
Brexit continues to have a significant impact on the value of Sterling. It fell to a 20-month low against the US dollar in early December when Prime Minister Theresa May delayed a vote on the proposed withdrawal agreement6.
The fall, a reaction to a perceived increase in the prospect of a ‘no-deal’ exit, suggests a potentially sharp drop in the event of that prospect being realised. There could be long-term turbulence even if a deal is passed, given the uncertain nature of the transition period and negotiations of new trade agreements.
A weaker Sterling has tended to benefit UK investors so far, with the FTSE 100 index bolstered to an extent by the effect on the many of its constituent companies deriving most of their earnings from outside the UK. But past performance is not a guide to future performance and one question being asked by some commentators in light of recent falls in the FTSE 100 is whether this correlation can continue in 20197 .
Retirement saving is the goal for many long-term investors, making changes elsewhere in pensions a relevant consideration for them.
The state pension will go up from £164.35 a week to £168.60 a week in April 20198. The state pension age will also begin to increase from March 2019 for both men and women, keeping it on course to reach 66 by October 2020. It is then scheduled to rise to 67 between 2026 and 2028, although the timetable may be reviewed again before then.
Moving to workplace pensions, the minimum required contribution for people automatically enrolled into pension schemes, under reforms phased in from 2012, will rise from 5% to 8%. Of the 8%, at least 3% must be paid by the employer9.
Those seeking information and direction on their pensions decisions will have a new outlet available to them which is due to go live this month, when the government’s new Single Financial Guidance Body launches. The service will see The Pensions Advisory Service, Pension Wise, and the Money Advice Service housed under one roof.
The new body will also be home to a non-commercial pensions dashboard. The dashboard, a prototype for which has been in development for the past two years, will give savers to access details of all their pension savings - including private, company and state pensions and potentially products such as ISAs - in one place.
The first multiple (commercial) dashboards are expected to go live during 2019, although state pension information is unlikely to be included right from the outset.
The Lifetime Allowance for tax relief on pensions savings will increase in April from £1.03m to £1.05m for 2019-2010 . The annual allowance for this remains at £40,000 (reducing by £1 for every £2 of income that an individual receives above £150,000) for those who have not yet started taking an income from their pension savings, and the annual ISA limit at £20,000.
The amount of tax relief that investors in England, Wales and Northern Ireland can claim on their personal pension contributions will be affected by an increase in the threshold for higher rate income tax to £50,000 in April 2019.
While that will take around a million people back below the higher rate tax threshold, it also means they will no longer get higher rate tax relief on their pension contributions (as it is based on their highest marginal income tax rate).
If you are resident in Scotland for tax purposes, the higher rate income tax threshold for you from April 2019 is £43,430. The higher rate itself is also slightly higher – at 41% compared to 40% for England, Wales and Northern Ireland.
Keeping an eye on how much you are being charged for holding your investments is another important area for those keen to make the most of their money. January 2018 saw investor protection tightened with the the second Markets in Financial Instruments Directive (MiFID II) coming in to force. Under MiFID II, in 2019 investors will begin receiving more information about the actual costs and charges they have paid for any fund investments over the previous year.
Including one-off, ongoing and transaction costs – this information will be disclosed on an aggregated basis and be given both as a cash amount and a percentage figure, along with an illustration of the likely impact of the costs and charges on investment returns. The idea is to help you better understand the impact of your costs and charges as well as be able to compare between different funds and investment providers more effectively.
Look out for this information from Alliance Trust Savings in the Spring.
From September 2019 investors should also be able to view new annual statements from fund management companies in which they provide an assessment of the value they deliver for the charges you pay to them. The Financial Conduct Authority introduced a requirement for these assessments to be produced following its Asset Management Market Study. They could be another useful tool to help you compare investments, reporting on factors such as costs, the range and quality of services provided and the performance of the fund.
This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions. If you have any doubts as to their suitability you should seek expert advice. Alliance Trust Savings does not give financial or investment advice.
Laws and tax rules may change in the future without notice.
Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.
1 CNBC - Stocks are on track for the worst year in a decade. Four experts weigh in on what 2019 will bring - 10 December 2018
2 Office for National Statistics – Consumer price inflation tables
3 Bank of England - Prospects for inflation - November 2018
4 Guardian - Bank of England says no-deal brexit would be worse than 2008 crisis - 28 November 2018
5 BBC - Bank warns no-deal could see UK sink into recession - 28 November 2018
6 Financial Times – Sterling drops to a 20 month low amid Brexit uncertainty – 11 December 2018
7 Guardian – Brexit watch, the December verdict – 27 December 2018
8 gov.uk, Benefit and pension rates 2019 to 2020 (page 11)
9 gov.uk, Workplace pensions. What you, your employer and the government pay
10 gov.uk, Budget 2018: overview of tax legislation and rates, Annex A: rates and allowances (page 12)
Alliance Trust Savings Limited is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings Limited gives no financial or investment advice. ‘Alliance Trust Savings’, ‘ATS’ and 'AT Savings' are all brand names of Alliance Trust Savings Limited together with the ‘Alliance Trust Savings’ logo are owned by and used with the permission of Alliance Trust PLC, the previous owner of Alliance Trust Savings Limited.