The world economy and stock markets have recovered from the temporary stop caused by Covid. Whether politicians were correct or not to put a stop to social interaction will be debated for years to come. What is clear is that the effect on government finances was disastrous and those political parties in power at the time are not being thanked in elections, whatever the colour of their politics. I think this is the crux of the political problems we are seeing today.

In the past, any periods of extremes in human activity, namely wars, have been a significant ‘kicker’ for economies. Covid was no different; while economic activity initially dropped nearly 20%, this was then recompensed by huge government spending and an increase in debt. I believe this was a big mistake, since as the human population increases, we will have more epidemics, viruses will become more virulent and pharmaceutical companies will fight to keep up.

In the UK, the new Government has been stating people want change, but the question is, from what to what? The same could be said for voters in France, Italy and the United States. Despite the politics in each country being different, the underlying frustrations of the electorates are similar, particularly regulation and immigration.

Western governments must grapple with the longstanding conundrum that we will not have economic growth without population growth, the consequences of which are stretching our natural resources, climate finances, and social structure.  As the rich get richer and the very poor have to be paid, the consequences on the social structure of nations are difficult. On the one hand, we need immigration in many Western countries for the jobs to be done that many do not want to do. On the other hand, these people need to be housed, educated and looked after. Meanwhile, the populations of the countries they have left continue to grow faster than the Western countries they migrate to. Inevitably, these issues will lead to greater conflicts in the world in the future. We will continue to invest in good quality defence, healthcare and pharmaceutical stocks.

So, while some European leaders or Keir Starmer offer ‘change’, they will not solve these issues, which are a consequence of the world population doubling over the last 50 years.

Our forthcoming Quarterly Review will provide a detailed update on how markets have performed in recent months but below are some key numbers. Suffice it to say that following the change in government in the UK, I would strongly suggest British taxpayers make the most of tax efficiencies and allowances available today. In particular, we should put as much as we can into ISAs and maximise pension contributions whilst we can. Capital Gains Tax is widely expected to be raised at the first budget, likely in October, and we will need to understand what our clients’ approach to crystallising gains will be in case that does happen.
 

Any views or opinions expressed in this piece are those of the author and not necessarily representative of Church House.

Previous articles in this series

Markets in a moment - Jun 2024

Markets in a moment - May 2024

Markets in a moment - April 2024

Markets in a moment - March 2024

Markets in a moment - February 2024

Markets in a moment - January 2024

Important Information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment arrangements.

Please also note that the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.