This July will mark 45 years since Ian Dury and the Blockheads released their classic song ‘Reasons To Be Cheerful, Part 3’.
In the lyrics – the last single to be released by the band in their original line-up – Dury shares a shopping list of items to be thankful for, from the Bolshoi Ballet and the Marx Brothers to porridge oats and a cure for smallpox.
In an uncertain world, the prospect of a Cheddar cheese and pickle sandwich, or the song ‘Volare’ might not represent enough of a reason to lighten your mood. However, from a wider economic perspective, there are currently many “reasons to be cheerful” about the UK economy.
So, taking inspiration from the Blockheads 45 years on, here are five.
1. The FTSE recently hit a record high
Over the last few months, the FTSE 100 – an index of the 100 most highly capitalised blue-chip companies listed on the London Stock Exchange – has hit a record high on several occasions, breaking the 8,000 barrier for the first time.
Source: London Stock Exchange
A rising stock market helps to grow any wealth you have invested in the UK such as your pensions, ISAs, or other investments.
There are several reasons why the FTSE has performed well in 2024.
Firstly, some of the leading companies in the index have seen their share price rise sharply on the back of excellent results. Over the last six months, Rolls-Royce shares have jumped 82%, capitalising on the travel and transport boom since the pandemic.
Elevated copper prices have seen shares in Antofagasta, the London-headquartered Chilean copper mining company, rise by 61% while NatWest Group has seen its share price rise by 55% over the last six months as banks have profited from higher interest rates.
The lower pound against the dollar has also helped the FTSE index to climb, because it boosts revenues for multinationals earning money overseas. The Guardian reports that companies in the FTSE 100 derive approximately 75% of their revenues from overseas, so performance can be strong even if the UK domestic market is flat.
2. Inflation is returning towards the Bank of England’s target
The latest Office for National Statistics (ONS) figures show that the Consumer Prices Index (CPI) rose by 2.3% in the 12 months to April 2024. Inflation has been falling in 2024 and is approaching the Bank of England (BoE) target of 2%.
Falls in the cost of energy have been a key factor in falling inflation. The BBC reports that the energy price cap will fall again on 1 July 2024, so the typical annual bill paid by direct debit will fall to £1,568 a year.
You should start to see the benefits of lower inflation in your day-to-day purchases – but remember that it doesn’t mean prices are falling (although they may in certain areas), just that they are rising less quickly.
In addition, lower inflation means that the returns you receive on your savings and investments keep pace with the rising cost of living.
Inflation reaching the BoE’s target should also enable the central bank to cut interest rates, and that brings us to…
3. Borrowing costs are likely to fall later in 2024
In response to the soaring inflation of 2022 and 2023, the BoE increased the base interest rate to 5.25%, the highest level in 15 years.
As inflation eases, central banks across the world will likely start to cut interest rates. Reducing the cost of borrowing benefits both consumers and businesses as the cost of debt falls – for example through lower loan or mortgage repayments.
The BBC reports that the deputy governor of the BoE, Ben Broadbent, has hinted that the first cut will come in the summer of 2024.
The downside of any base rate cut is that banks and building societies may reduce the interest rates they pay on some of their savings accounts. So, it will remain important to regularly review your cash savings to ensure you’re benefiting from a great deal.
4. The recession is over
The UK fell into recession at the end of 2023 as the economy contracted for two three-month periods in a row.
However, the BBC reports that the UK economy grew by 0.6% between January and March, the fastest rate for two years.
A growing economy (measured by rising Gross Domestic Product (GDP)) is ordinarily positive, as it usually means consumers are spending more, extra jobs are created, more tax is paid, and workers get better pay rises.
5. A general election could be good for your portfolio
The UK electorate goes to the polls on 4 July to decide the country’s future for the next five years.
Polling suggests a healthy lead for Labour under Keir Starmer and, while you might think that a general election and potential change in government would create uncertainty and nervousness in markets, history shows that the UK stock market often welcomes a new administration.
AJ Bell studied all 16 of the general elections since the inception of the FTSE All-Share in 1962 and found that, on average, the index recorded a double-digit percentage gain in the first year after an election that saw a change in the prime minister. There are also greater average gains when a government changes relative to when it remains the same.
Source: AJ Bell
While past performance is not a reliable indicator of future performance, this study shows that a change in government could drive growth in the value of your pensions or investments in the aftermath of the general election.
Get in touch
If you want to take advantage of these “reasons to be cheerful”, we can help you to build a financial plan aligned with your long-term goals and objectives.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
