News & Views

While the big picture when it comes to finance is looking cautiously optimistic, it's important to remember the individuals and personal plights that surround us. However, I also hope that the overarching economic view can provide some sense of encouragement for all as we look to a new year.

The last year has been a challenge – individually and collectively. For some, the losses have been cruel, both personally and professionally. All of us know someone who has suffered, whether it’s the loss of a loved one, loss of a business or who has struggled mentally and emotionally against the worry and strain of the pandemic and its implications.

It’s important to remember those details when we look at the big picture. However, it is also hoped that the overarching economic view can provide some sense of encouragement for all as we look to a new year. As we close off the books there’s good reason for cautious, collective optimism, at least from an investment perspective.

Despite the implications of the pandemic and geopolitical concerns, in the 12 months to mid-December, there was a 13.75% return according to MSCI PIMFA Private Investor Balanced Index, which by anybody’s standards is positive. Despite concerns at the start of the pandemic, the efforts of individuals and the collective whole, have meant that so far, the anticipated crash has been circumnavigated.

Jobs and unemployment rates

We know that the furlough scheme has done much to protect the income of millions of people, which has allowed for continued spending. It is estimated that during the lifetime of the scheme about 11.6 million jobs were supported.

We also know that unemployment rates in the UK went down to 4.2% in the three months to October 2021, the lowest since the three months to June 2020. Although those numbers are still higher than the pre pandemic figures (by 0.3 percentage points), reports also show the number of employees on payroll rose by 257,278 in November, the most on record, and job vacancies hit a new high of 1.22 million.

Inflation and interest rates

There are challenges to our daily lives relating to the rise in inflation, which jumped to 5.1% in November when the price of petrol reached a record high. However, to date, interest rates have remained historically low. There was a recent modest increase by the Bank of England Monetary Policy Committee of 0.15% to 0.25%, but despite that, borrowing costs remain cheap. We know those are likely to pick up a bit further next year, but forecasts predict that trend will subside in the second half of the year. That said, risks are on the up side.

Technology: the next generation

Technology continues to be the dominant industry and the City of London remains an ideal environment in which world leaders can thrive.

London’s tech sector has been described as having shown “remarkable resilience” through the Covid pandemic, attracting a record £8.6 billion in investment in 2020, more than any other European country. London Tech Week 2021 (Europe’s largest technology festival), saw 140 tech scale-ups actively considering expansion to the UK, and the UK fintech market generated revenue worth £6.6bn and employed 76,000 people as of the first half of 2020.

When I started working in the City of London, the big industrial bellwethers were the likes of ICI and General Electric. Today Amazon, Alphabet, Microsoft, and so forth, are the new industrial behemoths. The next generation of tech leaders, in the form of quantum computing, is now coming up fast in the outside lane. They will continue the centrality of technology as a driving force in the economy. In some ways, the pandemic has seen the escalation of tech innovation. For example, Facebook recently announced the development of its haptic glove to help you feel things in the metaverse. It is part of the general move towards virtual reality becoming… well, reality.

Of course, another area of ongoing growth is data. Much of the tech growth potential is inextricably linked to data processing and what that will enable. Statista estimated that the UK marketing data market was valued at 2.68 billion U.S. dollars in 2019, and it was expected to grow to 3.59 billion U.S. dollars in 2021.

Other interesting stats to come from TheCityUK financial lobby group recently included:

• The UK’s trade surplus in financial and related professional services is £79.3bn
• Over 240 active sustainable bonds were listed on the LSE from over 60 issuers in 2020, which have raised around £50bn
• The LSE had a 4.4% share of global equity market capitalisation and 2% of global equity trading by value
• UK private equity funds invested £29.5bn, the largest amount in Europe, in 2020

The fly in the ointment for these trends continues to largely come from geopolitical challenges, the risks of which are binary in that they either will amount to something, or they won’t. Broadly speaking however, The City of London, finds itself in a fairly balanced position - a tricky thing to achieve in any area of work and life at the best of times.

We remain mindful of events that could knock things off track in the short-term, but overall see positive trends as we head into the next quarter. It’s something which, without complacency, we can feel quietly confident about and hopefully enjoy as we take some time to be with loved ones over the holidays.