Metis AM
The end of the year is a good time to look back and take stock of everything you’ve learnt and accomplished over the past 12 months.
As well as reflecting on personal wins and challenges, it can also be helpful to look at the wider economy. While past performance can never guarantee future performance, learning from trends and historical data can help you to prepare for the future and protect yourself from possible risks.
With this in mind, what could you learn from some of the major economic developments from the last year?
1. Predictions about the economy or stock market aren’t always right
At the start of the year you probably saw plenty of forecasts showing that the UK would fall into a recession in 2023. CNBC reported that the UK could experience economic contraction only marginally less severe than Russia, while the Guardian suggested that the “impending recession could be twice as bad as previously thought”.
Despite these predictions, the economy has remained in the black and the anticipated recession hasn’t yet come to pass. That’s not to say that it won’t happen: the Office for National Statistics (ONS) reports that growth flatlined in Q3 after the economy managed just 0.2% growth in Q2.
This shows that even the most well-researched predictions can be wrong, so think carefully before acting on any that you might read or hear about for 2024.
2. Learn from your mistakes to avoid experiencing repeated crises
News of the collapse of Silicon Valley Bank (SVB) in Q1, closely followed by that of Credit Suisse in Europe had many fearing a repeat of the events of 2007 and 2008.
In early March, SVB faced a wave of $42 billion of deposit withdrawal requests. To raise enough cash to cover the outflows, SVB decided to sell some of its assets, but the sale came in at a loss of $1.8 billion.
While HSBC agreed to buy the UK arm of the bank, the US regulators announced emergency measures and the Federal Deposit Insurance Corporation stepped in to protect customers’ assets.
Shortly after this happened, Credit Suisse experienced its own crisis. A wave of financial losses throughout 2022 culminated in its stock price plummeting on 15 March 2023. The bank was later acquired by UBS, protecting customers’ assets.
The almost simultaneous collapse of two major financial institutions understandably caused concern just a few months prior to the 15th anniversary of the 2008 financial crisis. But there was one key difference between these cases and that of the Lehman Brothers: the intervention of central banks.
The events of 2008 have led to changes in how events such as these are handled by central banks and the wider financial industry. While history can repeat itself, if you take the time to learn from past mistakes and put measures in place to mitigate the damage that could be done, you’re less likely to make the same mistake twice.
Read more: Why did Silicon Valley Bank fail, and could it affect your investments?
3. Interest rates could stay higher for longer – but that’s not unusual
Rising interest rates have been one of the most widely reported financial stories of the past two years. Since inflation began to creep up in 2021, central banks have responded by raising interest rates in an effort to curb spending and bring inflation back to a more manageable level.
Prior to December 2021, interest rates in the UK had been at historic lows for around 15 years. But as inflation rose, the Bank of England (BoE) increased the rate at each of their 14 Monetary Policy Committee (MPC) meetings from December 2021, bringing the rate to 5.25% in August 2023.
At the September and October meetings, though, the MPC chose to hold rates steady, signalling that the rate rises may have reached their peak for this cycle. Sky News reports that the BoE is “concerned about the potential persistence of inflation as we go through the remainder of the journey down to 2%”. As such, interest rates are likely to remain higher for longer.
While interest rates are now at a 15-year high, it’s important to note that they aren’t unusual in the wider economic context. In fact, data from the BoE shows that from January 1975 to September 2001, the base rate didn’t drop below 5% at all.
It may be helpful to factor into your financial plan the likelihood that interest rates could remain elevated for the foreseeable future.
Get in touch
If you’re concerned about how global economic events could affect your wealth in 2024 and beyond, we can help.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
