Much has happened already in 2020, with global conflicts, presidential impeachments and our much-talked-about exit from the EU, which is why Acumen is taking a momentary “time out” to reflect on the financial events of 2019 before making our annual economic forecast for the remainder of this year. Here, Acumen directors Angela and Jon give their UK and world economic forecast for 2020.
Every year Acumen likes to share our financial predictions for the year ahead. With so much global uncertainty currently, these forecasts are nothing more than a bit of fun based on solid hunches and historical trends. Before we embark on our economic forecast for 2020, let’s look back at our forecasts for 2019 to see if our estimated guesses were on the money or not!
TL;DR – Acumen is very good at making economic forecasts, as it happens! Nearly every one of our predictions came true in 2019. This year we are predicting another positive year for investments, a further thawing of relations between China and the US with presidential elections looming, new opportunities if we finally get closure on Brexit, and a simplification of the annual allowance for pension savings -at least, this last one is what we hope will happen!
Acumen’s economic forecast 2019
This was our economic forecast 2019 and the events that actually transpired.
Bulls or bears?
Prediction: In 2019, we predicted that the US stock market’s buoyant “bull market” would continue, unless the American economy took an extremely unexpected downturn.
Verdict: Correct! In fact, 2019 was the year the bears stayed away and the bulls came out to play! Stock markets had a bumper year, with double digit returns wherever you looked. US markets performed particularly well, with the S&P 500 and the Dow both reaching all-time highs. Interestingly, the best performing stock market of 2019 went to… wait for it… Greece!
Minor interest rate hike
Prediction: Last year, we predicted UK interest rates would increase slowly, “by a few quarter percentage points.”
Verdict: Incorrect*. We got this right in a way but not completely bang on. The US central bank hinted at the end of 2018 that interest rates would rise aggressively in 2019. We felt this was unlikely and predicted a small increase in rates both in the US and UK. As it turned out, rates weren’t increased. In fact, the US Federal Reserve cut rates twice and the Bank of England held rates throughout 2019.
Trade war softening
Prediction: In 2019, we predicted a “softening of the trade wars” between the US and China for the greater good of avoiding a global economic slowdown.
Verdict: Correct. Trade wars continued to rage between the US and China for much of 2019, as the global superpowers acted like a teenage couple; all lovey-dovey one minute and bickering the next. This was certainly the theme of 2019 and moved markets more than any other issue. It may have taken a full year, but by early January 2020 a “transformative” new deal was signed, which suggests a softening of relations. We shall have to wait and see.
Boring Brexit rumbles on
Prediction: Last year, we took an extremely safe bet on Brexit uncertainty rumbling on into 2019. Jon predicted a second referendum and a vote to stay in the EU, while Angela erred on the side of a soft Brexit going ahead. It looks like Angela was right, although a hard Brexit isn’t completely off the table.
Verdict: Correct. There is still no firm deal. Despite the fact we have an outline agreement (of sorts!), there is still a long way to go.
With a 3/4 hit-rate and only one marginal misfire, it’s safe to say we did pretty well with our economic forecast 2019. As well we should as financial experts -cue sigh of relief!
In all seriousness, while we make these predictions in the spirit of fun, they stem from exhaustive research of global and UK markets, trends and analysis – all of which we bring to our daily financial advisory services.
* Technically we were right to say there would be minimal movement in interest rates but we didn’t foresee no movement at all. Admittedly, we’re being a little harsh on ourselves here!
Acumen’s economic forecast 2020
Here are our predictions for the year ahead…
Will the party rage on?
Jon: After a disappointing 2018 for investors, 2019 certainly helped put a smile back on our faces. Notwithstanding the unprecedented levels of political uncertainty (yes the two B words, Brexit and Boris!) our own stock market FTSE100 managed to deliver a whopping 13.62% return. This in itself is pretty impressive but even this looks a little tardy compared to the US where the S&P 500 rose by over 33%.
So, are we in for more of the same? Well, maybe or maybe not! Central banks continue to plough ahead with their accommodative policies of low-interest rates and the printing presses continue to be kept on standby, which should certainly help markets move forward. The threat of a US-led recession does seem to have been pushed back but, with markets reaching such high levels, we could certainly see any sudden negative change in sentiment leading to a strong sell-off.
However, politics could prove supportive this year. Maybe (just maybe!) we may have a clearer path to the resolution of the Brexit debacle, which would be welcome news to investors seeking some sort of certainty to build from. The US elections in November could also result in a boost for investors, with Trump surely determined to go into his campaign with US Stock markets at all-time highs and the US employment market in rude health.
Naturally, there are plenty of things out there that could scupper our plans. As I write, tensions between the US and Middle East are flaring up again, Brexit is by no means done and could get messy (again), data from China could disappoint, and there is always the possibility of something that comes along that just takes us all by surprise.
In terms of my economic forecast 2020, there is a lot of data to suggest it will be a positive year and my personal prediction for investment returns is aligned to this, albeit with a few ups and downs along the way.
Angela: Cautiously optimistic sums it up for me. I think the signs are positive for the year ahead and any recession that may come along is not on the immediate horizon and is certainly not anticipated in 2020. If it does show up, it doesn’t necessarily have to be as long-lived as past recessionary periods. Central bank engagement has been key to the economic recovery and the recovery from 2008 has been slow and steady – the bull market hasn’t run out of steam yet.
My prediction is that environmental, social and governance factors are driving corporate behaviour and investment decisions more and more. Greta Thunberg should feel pleased that consumers are looking more closely at what they buy and how it is produced. This scrutiny in turn affects investment decisions. I can see financial markets and investment portfolios increasingly taking these factors into account and that can only be a good thing for investors and the wider world.
From Acumen’s perspective, we take no pleasure in evaluating the impact of the fall from grace of Neil Woodford, once the darling of investors when heading his team at Invesco Perpetual. After striking out on his own, without the governance and due diligence imposed by his former company, the problems began to emerge.
The fallout from the Neil Woodford debacle which finally came to pass in 2019 and Acumen’s consistent position, alongside our chosen investment partners, not to invest in Woodford’s funds will, I think, prove to be significant. We are already seeing evidence of more investors seeking professional help with their pensions and life savings and I predict that will continue throughout this year.
Rather than choosing a “DIY” approach to investment, which has so damaged their portfolios and having relied on “buy lists” that drove so many clients to invest in Woodford – and indeed in Carillion, even in the days approaching its collapse two years ago – the value and “sleep-at-night” benefits of the professionally researched and monitored, diversified portfolios we recommend are clear to see.
Presidential elections will thaw relations between US and China
Jon: At least they are talking. However, it feels like when they are sat round a table talking they can find common ground but as soon as they get home they change their minds and decide to slap more tariffs on each other’s goods! The result? Stock markets tumble.
My prediction is that Trump will soften his stance as he starts campaigning for the presidential elections as a nice trade deal with China will give the stock markets a solid boost and make him look good. On reflection, these last couple of paragraphs sound like a couple of school kids in the playground… again!
Angela: Global markets were nowhere near as fixated on Brexit as we all were here. Central Bank interest rate policy and, as Jon says the US-China trade talks, were far more significant. Whilst elections aren’t an issue for the Chinese leadership, there’s no doubt that the election campaign will be a key issue for Trump and that relatively short-term goal for him will impact on the narrative – and his Tweets!
Brexit clarity might bring new opportunities
Jon: I’m not 100% sure what happens next with the finer detail and the final deal but I reckon by the end of 2020 we still won’t be officially out of the EU.
Angela: Whatever happens in terms of a timeline, from Acumen’s point of view, now we have more clarity on Brexit and a Government that is able to make decisions and carry plans forward, I am expecting an increased focus on inheritance tax planning and inter-generational financial planning. Plus, more confidence in investing in Enterprise Investment Schemes which also have some very attractive tax breaks to attract client interest.
Simpler pension allowance rules… please!
Jon: A lot of our time as advisers this year has been taken up with complex Pension calculations for our clients with Annual Allowance and Tapered Annual Allowance issues. Some clients were in danger of breaching the available allowances without even realising.
For the purposes of this article, I won’t bore you to death with the intricacies of this. However, it’s no exaggeration to say you need a PhD in advanced maths to get your head around it. Most of us don’t mind paying our fair share of tax but what we don’t like is spending hours gathering information and having to do heavy maths to work out the bill! Wasn’t HMRC supposed to be making tax less taxing?
My prediction (or perhaps that should be “hope”) for 2020 is the government will come to their senses and make the pension allowance rules simpler. I’d like to see them do away with the complexities of the tapered annual allowance and, whilst they are at it, they can scrap the lifetime allowance as well. It is my fundamental belief that we should all be encouraged and incentivised to put money away for our retirement. To make it more complicated seems counterproductive.
I get it that there should be some sort of limit on what you can put in each year to avoid pensions just becoming the “go-to” planning tool for the ultra-wealthy but let’s just stick to a simple annual limit (currently £40k per annum, which seems reasonable) and not penalise those who have seen their pensions rise above a lifetime allowance just because their pension investments have performed well and they have saved diligently.
Angela: I have been saying for some time that the annual allowance is an astonishingly poor piece of tax legislation which needs to be resolved. Brought to a head – and public awareness – by the number of hospital doctors refusing to work extra sessions due to the impact of tens of thousands of pounds in extra tax being demanded without any forewarning.
Much of this tax was on money they hadn’t even seen as the calculations are based on the notional accrual to their pension value. The resentment was palpable. Being somewhat cynical, I wasn’t expecting anything to happen until the tipping point was reached, whereby the net addition to tax revenue was outweighed by the impact on NHS staffing levels and patient experience.
I predict that one way or another this will be addressed this year. I just hope it’s not limited to doctors!
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