On Friday, new UK Chancellor Kwasi Kwarteng delivered a series of tax cuts as part what was originally dubbed a ‘mini budget’.

The ‘mini’ description ended up being misnomer, as Kwarteng delivered a set of reforms and changes, which have been described as the biggest tax cuts in 50 years and have caused significant movement in the UK market.

The key changes, which we summarised this article, included scrapping the 45% Additional Rate of Income Tax, bringing forward the 1p cut to the basic rate of Income Tax, lifting the threshold for Stamp Duty, and removing the cap on banker’s bonuses.

This was on top of the already announced £2,500 fuel cap freeze.

To pay for these cuts, the Government will borrow more heavily than previously planned. The strategy is a gamble: the Chancellor is hoping his policies will encourage investment, grow productivity, and spur faster GDP growth, therefore reducing the debt burden as a percentage of GDP.

Following the announcements, Sterling and government bonds sold off heavily, signalling doubt and uncertainty among investors about the future state of the UK economy.

Earlier in the month, Sterling was trading at a four-decade low of just over $1.13. By the start of today, however, it had fallen to just $1.04 – its lowest ever level.

“Markets have concluded that the result [of Kwarteng’s plan] is likely to be higher inflation and higher interest rates rather than a sustained period of much faster GDP growth. We agree,” explained Paul Dales, Chief UK Economist at Capital Economics.

A weak currency can have several effects, and impact your portfolio in a variety of ways. It makes imports more expensive, and exports cheaper, so can impact business differently depending on where their supply chains and revenue streams are located.

Currency markets are notoriously difficult to predict, and one factor of many that drive returns. Investors can mitigate against currency risk by having a diversified portfolio held over the long-term.

Azad Zangana, Senior European Economist and Strategist at Schroders, noted that the mini-Budget put the Bank of England in a difficult position, and that future interest rate rises were now likely to be higher as a result.

“Although the Energy Price Guarantee measure helps lower headline inflation next year by some three percentage points by our estimates, the giveaways, particularly for households, are likely to raise inflation at the end of 2023 and beyond,” he commented.

The Bank itself had already raised the Central Interest Rate by another 0.5% earlier in the week as part of its fight against inflation. This decision, which had been delayed due to the Queen’s passing, means the rate is now at its highest level since 2008, at 2.25%.

At the same time, the Bank warned the economy may be under stress. The UK’s economy shrank between April to June and if, as the Bank expects, the UK economy shrinks between July and September, that would put the UK in a recession.

Perhaps unsurprisingly, UK equity markets had a tough week. The FTSE 100 fell by 3%, while the more domestically focussed FTSE 250 fell by 4.4%.

In the US, the NASDAQ and S&P 500 fell by 5.1% and 4.7% respectively. This came after the Federal Reserve raised its Central Rate by 0.75% for the third consecutive policy meeting. The Fed’s language has taken a decidedly ‘hawkish’ tone of late, with its Chair discussing how rates still have ‘a way to go’ and committing to taking action ‘until the job is done.’

In Europe, the MSCI Europe ex. UK Index dipped 4.3%, as Russian President Putin announced a ‘partial’ mobilisation of Russian men – an action likely to prolong the war in Ukraine.

Mark Dowding, Chief Investment Officer at BlueBay, noted: “Meetings with EU policy makers this week suggest a sense of economic realism in Brussels. There is a sense that recession is a price to pay when there is war on the continent. The question now is how painful this recession will be, and this may be a function of how persistent inflation is, as rising prices imply a material contraction on real disposal incomes.”

When it comes to long-term care for the elderly, you may think it’s a matter that only affects older people in need of care and their children, who are likely to be in their 50s or 60s themselves.

However, the reality is that it can have serious consequences for people of all ages in a family – not least because the high costs involved can eat into any inheritance that an elderly person might be hoping to pass on to younger generations. This is particularly likely if the person suffers from Alzheimer’s or another form of dementia, as it can cause the care costs to rocket.

Planning for a longer life

One of the main issues that we need to confront is that people are now living for longer.

Firstly, it means that the age at which people might receive an inheritance is changing. Although it’s generally happening later in life, some older people are now considering where those assets can be of most use in a family and are choosing to skip a generation by passing their wealth directly to grandchildren.

And, secondly, it means that many of us who do live for longer will be more likely to need care in future – perhaps to the age of 100 and beyond.

“The result,” says Tony, “is that without careful thought and planning, care fees could completely erode all of those intentions of passing down an inheritance.”

The upshot of all this, says Tony, is that people should start planning for a range of scenarios at an earlier stage in their lives – and, wherever possible, from an intergenerational point of view.

“There are so many moving parts that the planning needs to come sooner than people might have previously anticipated – even though the outcomes and the actions might come later than before,” he says.

‘May flights of Angels sing thee to thy rest.’

The Royal Family pay their respects to the late Queen Elizabeth II.