Changes Proposed to Companies With UK Pension Schemes

From October 2012, companies will be required to auto enrol new staff into the company pension scheme once earning reach a certain level. Employers will be required to set up a new company pension scheme if one does not exist already. 

All eligible jobholders including anyone aged between 22 and the state pension age and earning over £7,475 will be required to enter the scheme.

Prospect of Rising Food Prices and Inflation

News that the US suffered one of its most devastating droughts in history last month is likely to affect the worldwide supply of corn. The drought has destroyed vast acres of crops in the Mid West and the October harvest is likely to yield significantly less volumes than expected. The US is a major global producer of corn and the shortfall will impact the rest of the world as prices are set to increase. Corn has already soared in price by as much as 140%. 

The prospect of rising food prices in the UK will add further inflationary pressure on households who have already seen their disposable income squeezed as a result of the current recession. The cost of living continues to increase with higher fuel and electricity prices whilst incomes are stagnating at best. 

The inflationary pressure from rising prices increases the likelihood of further quantitative easing (or money printing) by the Bank of England and this will have an adverse affect on savers and pensioners. 

Economists believe that the prospect of further quantitative easing is highly likely. In the US there are worries about rising food prices together with the prospect of the “fiscal cliff” as the US economy is highly leveraged after taking on too much debt. It is likely that the Federal Reserve will need to print more money. 

In Europe there are worries over the future of the Euro despite Mario Draghi’s promise that the European Central Bank will “do whatever it takes to save the Euro”. The ECB’s solution to saving the Euro is likely to involve buying sovereign bonds in troubled countries within the Eurozone. Again, this is likely to require quantitative easing. 

Businesses in the UK will be advised to review their supply contracts and lock in their prices where possible.

How To Benefit From the Euro Crisis

Our recent news articles have painted a grim outlook for both the UK and the Eurozone economies. A number of our clients are either self employed contractors or entrepreneurs in small businesses and have been enquiring as to how the they can benefit from the current recession in Europe. 

We have already mentioned in previous posts that the pending Euro crisis will bring opportunities, particularly in sourcing supplies from Europe should the markets crash. The Euro is likely to devalue against the Pound and could offer a range of opportunities to enterprising businesses. 

A number of businesses and individual investors are holding onto cash due to few opportunities being available to deliver a reasonable return on investment given the low interest rate environment at present. Growth opportunities in both the UK and Europe will be low for the forseeable future and the US economy is currently battling rising unemployment and may not generate sufficient growth in the near term. Investors are advised to explore opportunities in Emerging Markets as a means of achieving growth next year. Many companies are looking to expand their presence, particularly in China and Brazil where the economies are forecast to continue to grow over the next few years.

Finally, the pending Euro crisis and the strong possibility of a Greek exit together with further bailouts leads us to anticipate further quantitative easing, or money printing, by the European Central Bank. It is therefore our opinion that not only will this lead to a depreciation of the Euro, but this will lead to rise in the price of gold as European nations seek to move their funds and protect their investments. South Korea recently bought 16 tonnes of gold in July in order to diversify their investment portfolio (and possibly take advantage of a future rise in the demand for gold). China are also looking to invest in the gold market with the proposed acquisition of miner, African Barrick Gold. This may serve to reduce the global supply of gold and hence provide upward pressure on prices. Investors are advised to hold 5% of their investments in gold. You should consider buying gold if you haven’t bought some already. Gold is still languishing at the $1,600 mark and there is significant potential for upside.