Expert view: Slower growth may reduce donations

Predictions of lower interest rates, lower growth and fewer share donations suggest 2008 will not be a boom year for charities.

But the UK economy is still likely to grow next year, albeit at a slower rate than in 2007. Less buoyant conditions could also mean that the importance of conservation and of the third sector rises up the public's agenda.

Weaker growth in 2008 will lead to some further cutbacks in earnings forecasts, but should also lead to interest rate cuts to about 5 per cent. So although equities should produce positive returns, those from cash could be a little disappointing. Equally, 10-year gilts yielding only 4.5 per cent do not seem overly attractive.

More specialist areas could also disappoint. The property market has turned down and its shares have been weak. Investors trying to cash in on property unit trusts after years of strong returns could have difficulty selling their units and in receiving a decent price.

Emerging markets are also unlikely to produce the stellar returns that they produced last year. Although the Chinese economy should boom during the Olympics in August 2008, there is a high probability that some of the 132 million new Chinese shareholders will suffer once the party is over.

Slower growth and tighter credit conditions should act as a brake on the UK consumer, and this could lead to pressure on UK donations. In addition, the changes to capital gains tax reduce the attractions of donating shares to charities and could lead to employers biasing bonuses, which are taxed at a lower rate. However, the Government might encourage the public to become more focused on conservation and less on consumption over the coming period - its argument no doubt being that slower growth will help us hit our carbon emission targets.

At the micro level, charities should continue to look for money where it is most plentiful. The people who are making the most money tend to be those spending it or investing it the hardest. In the past year, the financial industry has recognised the growth in sovereign wealth funds and the defence industry has focused on the wealth in the Middle East. Charities should watch out for the next oasis.

- John Hildebrand is head of charities at Investec Asset Management

Key points

- Weaker growth in 2008 will lead to some further cutbacks in earnings forecasts.

- Slower growth and tighter credit conditions could lead to pressure on UK donations.

- Charities should continue to look for money where it is most plentiful.

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus