Global Market Update

The Western Economies remain highly indebted and the major central banks are expected to use unconventional policies such as Quantitative Easing (QE) to boost growth in their respective economies. Bloomberg refer to the prospect of global currency wars as the major Western economies look to print more money in a bid to devalue their currencies and boost the international competitiveness of their export market.

The popular consensus in the media suggests that Sterling is likely to weaken over the near term following Britain’s recent credit rating downgrade and fears over an exit from the EU. Meanwhile the Euro has benefited from a minor boost as fears over government debt have receded following Mario Draghi’s pledge to support failing European banks in the form of unlimited QE. The US Dollar has also strengthened from avoiding the “fiscal cliff” (for now).

The current environment of low growth, rising inflation and low interest rates makes it increasingly difficult for savers to generate a reasonable return on their investments. Investors are willing to take on higher risk in order to maintain their required returns. This is to the benefit of small businesses as we have seen a significant increase in angel investors in 2013 and a general trend of investors seeking to invest in well managed small businesses. There is considerable focus on companies with strong products and good growth prospects, supported by high quality management teams. In addition a business with a robust balance sheet and strong cash flow potential will be well positioned to raise cheap finance and explore its business opportunities.

The low interest environment has also seen an increase in corporate bonds. Contractors with excess funds will find that they can secure better interest rates by investing in corporate bonds rather than keeping the money in the bank. Corporate bonds are not without risk and investors should seek financial advice from a professional advisor before exploring these opportunities.

Many believed that any recovery is likely to be led by the US whose economy is showing signs of growth. It is hoped that once president Obama tackles the issue of the US Fiscal Cliff, the US will surge towards recovery.  A large number of US multinational corporations have been stockpiling cash in anticipation of a recovery. Once the labour market improves and confidence is restored in the economy, we may well see the beginning of a recovery. The progress of the US may well be a catalyst for growth in the wider market including the UK and Europe.

Weak Economic Outlook for Eurozone

The Eurozone crisis continues to make the headlines in 2013 with reports for the first Quarter showing that the Eurozone economy contracted by 0.6%. Of greater concern is the fact that the major economies of France and Germany are showing signs of struggling. Last month Cyprus became the latest Eurozone member to require a €23 billion bailout of its banks. News that savers would lose deposits over €100,000 came as a shock to the rest of the world and is a sign that the European Central Bank (“ECB”) will no longer bailout the failing banks of its member's. It also raises the prospect of whether a similar levy might be employed by other Eurozone nations. This combined with record unemployment in Spain and Greece offers a bleak outlook for the Eurozone. This will undoubtedly have repercussions to the global economy. Even China is beginning to feel the effects, having reported a slowdown in economic growth.

The ECB’s recent announcement that it will reduce interest rates in the Eurozone comes in response to the poor growth figures announced last quarter. However, this measure is likely to prolong the problem rather than resolving the issue of poor growth in the economy. Low interest rates will continue to punish savers and investors who are finding it increasingly difficult to generate a reasonable return on their assets. Equities are seen as the most viable option available to investors at present who are willing to take on more risk in order to pursue the required returns on their investment. Given the reluctance of the major Western Economies to tackle the issue of rising government debt it is unlikely that we will see interest rates rising in the UK, US or Europe any time soon. In fact the governments appear willing to employ monetary easing measures (ie money printing) to prop up their ailing economies until inflation forces their hand.

Whilst the economic outlook for the Eurozone is gloomy, this could represent an opportunity for entrepreneurs and small businesses. Investors and venture capital firms are increasingly looking to invest in small businesses as part of their portfolios. London has seen a significant rise in the number of angel investors looking to invest in quality businesses. The Seed Enterprise Investment Scheme (SEIS) launched by the government provides added incentive to angel investors in the form of a 50% tax break for individuals investing in qualifying businesses. The current economic climate offers considerable opportunities if you are a small business owner looking to raise finance. Similarly, individuals and contractors with spare cash could benefit from investing in small start up businesses. For more information, please feel free to contact us at info@belsizeaccountancy.co.uk.

Budget 2013 Update

After the announcement of Budget 2013 by Treasury Chancellor George Osborne on 20 March, we summarise the key points in the Budget: 

• An increased income tax allowance from £9,440 in 2013 to £10,000 from April 2014, an increase which is one year earlier than expected. Basic and higher rates of income tax stay the same, which are 20% and 40% respectively. The Chancellor maintained his decision to cut the top rate of tax on pay over £150,000 from 50% to 45% from April 2013. The following table shows the comparison of income tax allowance, tax rate limit and the threshold between 2012 and 2015.

Year	2012/2013	2013/14	2014/2015
Personal allowance	£8,105	£9,440	£10,000
Basic rate of tax limit	£34,370	£32,010	£31,865
Higher rate of tax threshold	£42,475	£41,450	£41,865

• From April 2013 anyone wanting to buy a new-build property will be able to access a 20% government loan as long as they have a 5% deposit. The Government will support people who can put down a 5% deposit to buy a home through two schemes to increase the supply of low-deposit mortgages and new housing. These two schemes are a Help to Buy- equity loan and a Help to Buy- mortgage guarantee.  Each scheme will help you to purchase a home valued up to £600,000.
  
• A pledge to cut the main rate of corporation tax from 24% in 2013 down to 21% in 2014, then down to 20% from April 2015. The cut to 20% is the third in a row by George Osborne, with the rate dropping from 28% to 24% in April 2013, and from 24% to 21% in 2014. The reductions in the main corporation tax rate are part of a co-ordinated strategy to improve UK tax competitiveness in the EU and make UK more open for business.

• Around 450,000 small businesses will pay no Employer National Insurance Contributions from next year after the introduction of a new Employment Allowance. This employment allowance will remove the first £2,000 off the employers' national insurance contribution on the small businesses. A person who has set up their own business, and is thinking about taking on their first employee will benefit from this allowance. They can hire someone on £22,400 per annum, or four people on the minimum wage, and pay no employment tax from next year.