Ken Davy  

Find a safe harbour when hurricanes are possible

Ken Davy

Ken Davy

Is this the perfect storm, or something the economy can breeze through? How would you feel if your bank were to write to you with the news that, instead of having £50,000 credit, you were £5,000 overdrawn?

If we are to believe the headlines, this is the situation the government suddenly finds itself in as the authoritative Office for National Statistics has declared that, rather than the UK having an overall asset surplus of £490bn, we have a deficit of £22bn. 

If this news was not bad enough for the chancellor, the Office for Budget Responsibility is now forecasting that the UK’s growth over the next five years is going to be markedly lower than previously expected.

As Philip Hammond sweats over his November Budget, he faces a situation where, instead of having a surplus available, he has only limited room for manoeuvre, which gives him even more reason to get rid of higher rate tax relief on pension contributions.

The key question for IFAs is what we advise our clients to do when faced with macroeconomics indicating that financial Armageddon is imminent. Do we disregard it as leftover baggage from the already disproven dire predictions of "Project Fear"? Or do we prepare our clients for some very difficult times ahead? Given that the UK stock market currently continues its robust performance, there is little sign that any of the recent revelations and negative predictions are having an impact on sentiment.

Is this the financial market’s Michael Fish moment – when 30 years ago he famously told us to relax, as no hurricane was on its way. I well recall seeing his forecast on TV on Sunday evening and sitting in my office the following morning listening to tales of devastation from across the country. So much for forecasts. 

My personal view is that, with all the dangers that threaten current markets, the downside risk outweighs the upside by quite a margin. If you want to avoid your own personal Michael Fish moment with clients, I recommend you tell them that you have no idea which way the market winds will blow. However, by opting for the safe harbour of a cautious, well diversified, internationally spread portfolio, they should be able to ride out the worst of the storms that might lie ahead.

Ken Davy is chairman of SimplyBiz Group