Autumn Statement response: investments perspective

The headlines are full of tax hikes, spending cuts and dire economic forecasts for the UK. But though you may be forgiven for sensing a certain despondency in this new round of austerity, things are not perhaps as gloomy as they may appear.

Forecasts are not fate

As ever, we must first remind ourselves that projections of the future are almost always wrong – especially when complex, unpredictably human things like national economies are the objects under consideration.

We should be just as sanguine about dour outlooks as exuberant ones. Indeed, it’s easier to raise an eyebrow at an overly-optimistic prognosis than it is to doubt an Eeyore-ish view – somehow, pessimism can be perceived as world-weary wisdom.

Reassuringly dull

As for the Chancellor’s Autumn Statement itself, it was perhaps the least surprising in recent history – and quite deliberately so. Indeed, it was in effect merely the official announcement of measures already trailed in the media.

This was no time for rabbits pulled out of hats – dullness was the order of the day, so as to avoid further market ructions.

In this respect, the Chancellor succeeded. The pound only dipped very slightly, and the cost of national borrowing (as indicated by the yields paid to investors in UK government bonds – known as gilts) was refreshingly inert.

Our friends at Capital Economics believe that, with market fears of fiscal imprudence assuaged, the Chancellor may well have bought himself room to manoeuvre in the years to come – some of the tighter measures could be loosened without ever coming into effect.

Economies are not football teams

With the World Cup now underway, newspapers are more than usually replete with national comparisons. But while this makes sense for teams of 11 playing on the same pitch, it’s less insightful when performed across economies.

Even when dealing with statistics of actual inflation, growth, productivity and so on – let alone projections – we should resist the temptation to either gloat in triumph at our superior numbers or immiserate in those which place us at the bottom of the table.

For one thing: the economic make-up of the UK skews very much towards financials. This is not to say that “we don’t make anything anymore” – nothing could be further from the truth – but it is simply to point out that large banks and associated businesses form a larger portion of our economy than those of our neighbours. Thus, we have a different set of exposures to the global winds of change.

True, our short-termist energy policy can be blamed for some of the woes afflicting the UK, and our outsized vulnerability to commodity price shocks compared to the US (say). But the same can be said of other European economies.

In short, just as with Covid-19 case counts, it’s impossible to make straightforward, apples-to-apples international comparisons. Too often, those wielding such figures seem to be interested only in making a point that happens to align neatly with their political stripe.

Political volatility might be no bad thing

Furthermore, in all of this we must consider the unfashionable possibility that the UK political system isn’t quite the damaged good it has been portrayed as. The reversal of the Truss-Kwarteng ‘mini-Budget’ happened not only swiftly but bloodlessly, in response to clear feedback.

Looking around the world, by contrast there are examples of highly damaging policies forced upon citizens by authoritarian demagogues who brook not even the merest hint of dissent.

Progress is the product of trial and error. Perversely, those who try and fail the most frequently will usually be the ones who make the breakthroughs.

Patterns versus explanations

So, is the UK really like a serial entrepreneur? Perhaps that’s stretching it a bit. After all, you can’t tell from failure rates alone whether a process is highly adaptive and likely to soon meet with success, or merely mired in bad habits and stuck in a rut.

Anyone who has spent a fair portion of their career poring over charts, thigh-deep in statistics, will tell you: numbers can mislead. It’s explanations that matter. Only through sound understanding can we learn what’s truly going on.

Applying all this to the UK’s economic prospects, we have to ask: are our depressing growth projections plausible? Might we be pleasantly surprised?

And how much of this is ‘our fault’, rather than our fate?

Finally – are our institutions sound? Do our collective incentives augur well, compared to others’? Are we beset by exceptional constraints?

Only with a reasoned consideration of these points can any economic analysis be taken seriously.

The global context

From an investing perspective, the Autumn Statement matters an awful lot less than the column inches it generates. Ultimately, the UK represents a small portion of a globally diversified portfolio, which will be far more influenced by the behemoth across the pond.

There is one element, however, which the Budget could have conceivably influenced, and which has become increasingly important this year: currency movements.

Particularly since the ‘mini-Budget’, the value of the pound has tended to track global stocks. Sterling, it seemed, had joined the ‘risky’ club.

But by leaving equity allocations unhedged with respect to foreign currency movements, our Global Tracker Portfolios effectively benefitted from automatic stabilisers. Of course, it could have gone the other way, and still might – which is why portfolios with smaller allocations to the volatility of stocks and shares should also be shielded from the ups and downs of currencies.

Talk to your private banking team

Should you have any queries about any of this, please do not hesitate to contact your private banking team.

Important information

Investments can go up and down in value and you may not get back the full amount originally invested.