Page 10 - DIY Investor Magazine | Issue 35
P. 10

DIY Investor Magazine · Oct 2022 10
A cost-of-living crisis industrial unrest fears over energy supply and the the the ongoing headache of of of Brexit - - - these are just some of of the crunch points facing Boris Johnson’s successor Sue Noffke Head of of UK Equities
Andy Brough
Head of Pan-European Small & Mid Cap Team
Jean Roche
Fund Manager Pan-European Small & Mid Cap Team
The UK’s new prime minister faces an in-tray of burning issues that need urgent attention These include a a a cost-of-living crisis sparked by inflation at at a a a a a 40-year high rocketing energy prices a a a raft of of strikes and the the unresolved difficulties of of the the UK’s decision to leave the European Union THE COST-OF-LIVING CRISIS
UK households face an income squeeze on on multiple fronts in in coming months Double-digit inflation is expected by the end of 2022 alongside double-digit falls in in discretionary spending as as the near doubling of wholesale
gas prices since May
2022 feeds through
into the retail energy prices paid by UK households The median UK household income (after tax) is £31 400: a a a a £1 500 rise in energy bills for the typical household amounts to around 5% of annual income The rise in in mortgage costs looks likely to be of a a a similar magnitude So far in in 2022 household disposable income has grown due to a a a a a a a buoyant labour market and the drawing down of savings built up during Covid lockdowns The income tracker from grocery chain ASDA (which started in in 2011) shows a a a a year-on- year decline for July 2022 of 16 5% in in in UK household income (excluding bonuses) after tax and spending on on essential items This is is equivalent to a a loss of £40 per week This is is likely to fall much further ‘ALMOST A A A A A QUARTER OF ALL HOUSEHOLDS HAVE NO SAVINGS SAVINGS AND A A A A A FURTHER 9% HAVE SAVINGS SAVINGS OF £250 OR LESS’
The savings built during the pandemic – estimated at at £190 billion – are not equally spread amongst households Lower- income households typically have limited or no savings and the the poorest households will feel the the squeeze more acutely than middle- or higher-income households Almost a a a a a a a quarter of all households have no savings and a a a a a a a further 9% have savings of £250 or less With inflation likely to exceed the the 13% peak forecast by the the Bank of England (BoE) workers will be be no better off by mid-2023 than they were 20 years earlier (according to research by the Resolution Foundation) POLICY CHANGES: BUT WHAT ABOUT BUSINESSES?
Liz Truss has called for more than £30 billion of tax cuts in a a a a a bid to stimulate the economy and ward off a a a a possible recession Further political support could come through
reversing the the rise in in National Insurance contributions brought in in by the current administration to boost funding for adult social care A further £30 billion could be delivered through
Universal Credit (social security payments) raising the income tax personal allowance thresholds (the level for when people start paying tax) or through
reductions in in the level of VAT STRIKE ACTION SET TO CONTINUE
UK workers are experiencing the biggest falls in in real pay (wages adjusted for inflation) since 1977 With inflation inflation set to to remain high throughout 2023 industrial action is set to to increase In 2022 we have seen strikes by transport workers postal workers and and and barristers and and and this unrest is is is set to expand to other industries 

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