For all the resilience the UK economy has shown, there is no doubt that this year's ISA season is set against a backdrop of uncertainty. Whatever the pros and cons, Brexit, and a lack of clarity on what our future economic relationship with the EU will look like, has left us at a crossroads.
Recession: inevitable, but is it imminent?
As the adage goes, every 5-7 years, people forget that a recession happens every 5-7 years. However, while we were blindsided by the 2008 financial crisis, it's fair to say that ignorance has not been bliss this time around. In fact, barely a week goes by without some doom-monger announcing that a severe downturn is about to take hold. To borrow another quote, this time credited to American economist Paul Samuelson, “Wall Street indexes have predicted nine out of the last five recessions.”
Yet as 2018 draws to a close, with (albeit meagre) growth now recorded in 24 consecutive quarters, it's not unreasonable to wonder when the next recession is on its way. Furthermore, one can't help but wonder if the consequences will be graver than a decade ago.
What could precipitate a recession this time?
It's difficult to read a news article these days without the word 'Brexit', and there have been some dire predictions as to what lies in wait should a disorderly withdrawal from the EU come to pass. But even in these febrile times, it is hard to imagine the UK and the EU allowing something mutually destructive to eventuate. More likely, an arrangement of some kind will be agreed, which could give the economy a significant bounce.
Either way, some economists believe Brexit is actually a bit of a sideshow, and that issues such as the prospective US-China trade war, struggling stock markets, Italy's banking crisis and rising US interest rates pose a greater threat to global economic stability.
And there is consensus that even a reversal of economic momentum which is comparatively minor to 2008 could have a worse impact, given that the recovery has been a painfully-slow one, and that many economies are currently dogged by high levels of debt, and a dependence on low borrowing costs.
The rise of zombie firms
In a purely relative sense, Britain has done fairly well since the crash. Employment rates have recently touched record highs, the deficit has been drastically reduced, and real wages are showing signs of life. Nevertheless, it has clearly been a difficult period in our economic history, and one of the major resultant Achilles heels is low interest rates. The Bank of England cut base rates to emergency levels of 0.5 per cent way back in March 2009, as we plunged into devastating recession. Yet, nearly 10 years later, rates are up just a quarter point.
According to The Bank for International Settlements (BIS), the umbrella organisation for global central banks, one of the dangerous by-products of this has been the creation of so-called 'zombie companies' - entities whose only hope of survival is the steady flow of ultra-cheap money.
BIS research of 14 advanced countries showed that the level of these zombie companies (who are unable to service debt from profits over an extended period of time) had shot up to 12 per cent by the end of 2016 - up from just 2 per cent in the late 1980s.
Such firms are, by definition, stimulators of false economies, and result in a misallocation of resources which, in turn, hinders productivity. As the paper points out, this drop in productivity can then apply further downward pressure on rates, creating a vicious circle. Raising interest rates is ostensibly an easy way to cut that figure back down to size. But such a course of action comes at a cost: rising unemployment.
And the zombie metaphor isn't only specific to companies either. Banks, saddled with non-performing loans, are struggling to perform their core function of lending to people and businesses. Even countries as a whole find themselves unable to escape this dependency on low interest rates, and the drain on productivity which results.
What about the UK?
The blight of zombie companies is one which many believe explains the dismal levels of productivity we have seen in the UK. According to the Office for Budget Responsibility, our productivity growth had the capacity to reach 2 per cent year-on-year before 2008, but has since managed less than half of that.
In any event, for countries like the UK, a big concern is that there aren't many levers left to pull from a monetary policy perspective if a recession were to strike. With rates still at a paltry 0.75 per cent, the Bank of England has very little headroom. It would thus be incumbent upon fiscal policy to step in, with Government boosting spending and investment, and/or cutting taxes to stimulate demand in the economy.
Although deficit reduction has left us in a much better place to facilitate this, a debt stockpile of £1.8 trillion means this wouldn't exactly be a blank cheque. So the Chancellor, whoever he or she might be at that point in time, would have an unenviable balancing act on their hands.
Is it really that bleak?
Not exactly. The above are all rational concerns based on reliable, independent analysis, and should be taken seriously. But there are other economic elements which stack the cards in our favour too. Britain's powerhouse services sector continues to flourish, and there is a widely-held belief that, once more clarity on the Brexit front is established, a tide of investment will be unleashed.
Our dynamic tech sector also remains the envy of the world. In fact, as of May 2018, it reached £184bn, with a growth rate 2.6 times faster than GDP. Part and parcel of this are sectors such as fintech, which attracted more than £12bn of investment in H1 alone.
The UK also remains a global hub of science and innovation, and it is the growth of Artificial Intelligence (AI) in particular which has the potential to dwarf many other political and economic stimuli. To underscore the immense power of AI, esteemed firms such as PwC predict that it will bring about a £232bn increase in annual GDP to the UK (over 10 per cent) by 2030.
What lies in store for 2019?
There's no point trying to dismiss the possibility of a downturn as the next year unfolds. The economic cycle is a fact of life, and whether it's one year from now, five years from now, or two decades away, another recession is an inevitability.
However, recessions are often fuelled (at least partly) by pessimism on the part of consumers and business - a self-fulfilling prophecy, if you like. Our sensationalist media don't make it easy to stay upbeat when it comes to the state of the economy either. But just because the good-news stories don't make the front pages, it doesn't mean they aren't there.
Britain has many, many underlying economic strengths that few others can rival. And even with the cocktail of threats facing ours and the global economy, coupled with grisly forecasts, we continue to defy the odds. Who knows: with a reasonable Brexit deal, a wave of business investment, and a surge in consumer confidence, 2019 may well be one of significant prosperity. And even though it's the festive season, that doesn't need to be wishful thinking. There are sound fundamentals on which to base such hopes.
The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
As the tax year end approaches, the financial services industry readies itself for a flurry of activity. That's in large part because, with just a couple of months to go, the so-called 'ISA season' is upon us.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.