Join our community of smart investors

Budget fails to dispel unease about the UK recovery

Good companies with international revenue remain Phil's preference despite UK value.
Budget fails to dispel unease about the UK recovery
  • Stock markets remain jittery about recovery, rates and inflation
  • Markets may well consolidate this year after prices ran away from earnings in 2020
  • Pension savers clobbered in the Budget

Stock markets continue to show signs of worry about economic recovery, interest rates and inflation. As a result many shares are struggling to make much progress right now and might not do so for some time.

After a very strong 2020, when share prices ignored what was happening to profits, it would not surprise me if we ended 2021 with markets down by 10 to 15 per cent and I don’t think that this would be a bad thing for long-term investors in shares.

With valuations on growth shares very high and a strong recovery in many cyclical shares increasingly priced in, it's difficult to see what’s going to push markets higher in the short term.

The problem that investors continue to face is that growth shares are expensive whilst many cheaper shares have no long-term growth. Cheaper shares may therefore outperform growth shares for a while but when they have rerated where do they go?

Growth is what drives share prices over the long haul and I continue to take the view that it is better to own expensive shares with growth prospects, rather than cheap shares with little growth potential, if you want to increase the purchasing power of your money over the long haul.

This week’s budget offered little cheer for UK investors in my view. The freeze in the £1,073,000 lifetime allowance (LTA) on what people can build up in a pension pot before extra taxes are payable was a disappointing decision that discourages saving and a culture of self reliance.

Sadly, I think higher income pension savers will get clobbered again later in the year when the chancellor is likely to take away higher rate tax relief on pension contributions because it is an easy source of plentiful extra cash.

Download PDF