As we approach the end of 2022, all eyes are on 2023 and prospects for the UK economy and stock market. We are now at the tail end of the Covid pandemic, although the economic decimation left behind will be headline news for some time to come. In these crucial times, it is essential to look ahead with regard to overall wealth management and, specifically, asset management.
UK heading for five quarter recession
The British Chamber of Commerce (BCC) has issued a detailed report into prospects for the UK economy in 2023. It is now widely recognised that the UK is heading for a recession. However, this may not be as prolonged as many had predicted. With funds likely to be tight, it is vital to appreciate the relevance of asset management, especially with interest rates rising. In recent times, with interest rates hovering just above zero, there was no real benefit in having cash in the bank. Savings accounts are a discussion to have with your wealth management adviser, with interest rates likely to peak at around 5.25%.
Many people believe that today's UK stock market valuations reflect the prospects nine months ahead. This is an essential factor to consider concerning asset management because making changes in the face of headline news calling out a recession may actually see you behind the curve. Therefore, a proactive rather than reactive wealth management strategy may prove beneficial.
Inflation
Inflation will be a hot topic in many wealth managementmeetings, having hit double digits in the UK. The BCCpreviously forecasted inflation to peak at 14% towards the end of 2022, but this has since been scaled back. While still likely to start 2023 in double-digits, inflation is now expected to peak at 11%. By the end of 2023, the figure is forecast to fall to 5% and eventually to 1.5% in the final few months of 2024.
Asset management will be a critical part of any investment strategy in the short to medium term. While increasing the element of cash in your portfolio may look more attractive, with interest rates rising, double-digit inflation will eat into this return. These are indeed challenging times, with interest rates increasing to combat inflation while the economy struggles.
Taking a broad look at the UK
Undoubtedly, wealth management, particularly asset management, will be even more critical in the short to medium term. While the UK economy is expected to grow by 4.2% in 2022, it will contract by 1.3% in 2023. It is then forecast to return to growth in 2024 at around 0.7%. Maintaining any degree of relative spending power in the short term will be challenging, asset management options potentially limited and a need to be proactive rather than reactive.
Regarding wealth management, household incomes will be under severe pressure over the next few years. The BCC believes that UK unemployment will hit 3.7% in 2022, rising to 4.5% in 2023 and expected to peak at around 5.1% in 2024. Interest rates are forecast to end 2022 at 3.5%, increasing in 2023 to a peak of 5.25%, and then fall to 4.5% in 2024.
Conclusion
Wealth management involves an element of proactive and reactive management of finances and assets. If we dig a little deeper down, asset management could be challenging in the short to medium term while inflation returns to more traditional levels as interest rates continue to rise. Stock markets look forward in relation to today's valuations;therefore, it could be argued that part of the recession is already factored into current prices.
Whatever happens in the short term, there will be a significant focus on wealth management companies, particularly asset management. While not always easy, it is crucial to remainfocused on the medium to long-term while also being appreciative of short-term challenges.