The impact the recent recession has had upon growth in the economy has been unprecedented in living memory, and its impact over the long term has yet to be fully appreciated.
The nation still bears the scars of the last eight years; growth is patchy, unemployment, though down from the peak, is a constant worry for many and the future remains uncertain.
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The Eurozone is teetering on the edge of deflation, which if it occurs, would have serious consequences for the UK and all the progress made to beat the recession. Increased polarisation of the two main political parties as we approach the general election in May could have consequences for taxation as wealth is seen as a target by some to aid the reduction of the deficit.
This uncertainty around the structure of government and volatility in the direction of policy could have an adverse effect on markets. As a result, investors may face more of the volatility we saw in markets up to 2012, making it very hard to know what to do, not only to generate wealth, but to protect it.
What is evident is that the recession greatly impacted income and wealth generation across the UK as well as the distribution of this wealth. While property remains a dominant asset, property wealth has been hit and its recovery continues to be sluggish as lending for property purchase remains relatively low compared to pre-crisis levels*. An area where there has been less divergence in the last eight years is in physical goods, which includes personal items, collectables, cars and so on.
Another highly important area for the generation of wealth that remains is through inheritance. Between 2008 and 2010, the ONS estimated total inheritance to amount to £75 billion. The data shows 1.6 million adults (3.6 per cent of the population) received inheritance of £1,000 or more between 2008 and 2010, while one in ten inherited £5,000 or more.
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By GlobalDataHowever, inheritance levels are likely to decline as an ageing population has for some time threatened to spend its children’s’ inheritance, having the life their parents could never afford. In reality, people require their assets to last longer and there are increasing pressures upon individuals to make provision for long-term care costs in their later years. Even if houses are not sold to downsize, the development of the equity release or lifetime mortgage market may provide more individuals with an opportunity to release equity from what is often their largest asset.
Although it’s clear that we still have some way to go before we can safely put the recession behind us, there are some positive signs that are worth noting; unemployment is lower than many major economies, particularly in Europe.
There is growth in the economy and an expectation that interest rates may be increased within the next year, which will have a positive impact on the markets and the government’s monetary policy. Salary and bonus levels have begun to creep up, albeit slowly and certainly not uniformly.
Housing prices have also begun to move back towards pre-crisis levels, though recovery for some regions may take considerably longer. And our clients are again able to sell, as well as develop their businesses, and reinvest that wealth into the growth of their region.
Only time will tell if we are right to be concerned for our future, but it is essential we should be prepared for it. The crash in 2008 was painful because we didn’t see it coming. No one wants to be caught out again and we all need ways of maintaining wealth – now and for the future.
*Source: The ONS Wealth and Income report for 2010 to 2012 which incorporates the Wealth and Assets Survey
Eric Barnett, CEO of Societe Generale Private Banking Hambros
