Whatever the outcome of the tense diplomacy surrounding President Trump’s Ukraine peace deal, especially following his explosive meeting with President Zelensky, the result is set to be a new world order.

Like other European states, Britain will be spending more on defence. So how will Chancellor Rachel Reeves balance the books? Should the UK and its Continental neighbours confiscate the billions in frozen Russian assets they hold? Should we as Britons be braced for stealth taxes to cover higher military spending?

As savers, investors, and borrowers, we need to consider the possible impact on our personal finances.

The shifting of the world order being brought about by Trump’s machinations over the future of Ukraine is driving a wholesale reassessment of investment portfolios. It means savers need to question some assumptions that have held good for years.

Small investors are looking for new opportunities – for example defence company share prices have soared – as well as seeking assets traditionally viewed as safe havens, such as gold.

There is also an interest in businesses that may be involved in any eventual rebuilding of Ukraine.

Conflict: The rancorous meeting between presidents Zelensky and Trump has unsettled global investors

FORGET CRYPTO – GO FOR GOLD

The diminishing appetite for risk in a more uncertain world has sparked a decline in the price of bitcoin and other cryptocurrencies. They were riding high at the end of last year on a wave of optimism after Trump’s re-election, in the belief the president would be supportive of crypto. But bitcoin’s price stands at about $85,000, having fallen heavily from about $105,000 in December.

By contrast, gold is up 43 per cent on a year ago at $2,888 an ounce, underlining its age-old status as a refuge in an era of uncertainty.

The rise also reflects the extra demand set to flow from the artificial intelligence (AI) revolution. Gold is a small, but essential, element in microchips and in AI-enabled devices such as phones, as well as for the data centres that power this revolution.

The precious metal has its drawbacks – it generates no income. However, generations of investors have held some gold in the belief it is an asset that holds its value in uncertain times.

You can gain exposure to gold through exchange traded funds (ETFs) such as iShares Physical Gold, which put money into bullion, or through funds such as Ninety One Global Gold which owns shares in gold mining firms.

BACK BRITAIN

The encouraging results of Prime Minister Sir Keir Starmer’s meeting with the US president this week should be seen as good news. Jason Hollands of Bestinvest warns that Trump’s stance may suddenly alter, but the prospect of a trade deal with the US could restore some optimism in the UK markets.

To make the most of a revival in the mood, consider funds and trusts that back Britain, such as City of London and Temple Bar trusts. UK markets are set to be galvanised by foreign predators hoping to seize firms at bargain basement prices, such as US private equity firm Bain Capital’s bid for defence firm Chemring, and by activist investors pressing for improvements at firms such as BP.

City of London’s largest holdings include BAE Systems. Shares of UK firms in this sector, including Rolls-Royce, are soaring, driven by plans to raise defence spending in the UK and elsewhere. Other beneficiaries of this trend will be European armaments and aerospace manufacturers, such as Italian company Leonardo and the German conglomerates Rheinmetall and ThyssenKrupp.

Defence companies have been shunned by many investors in recent years since they did not comply with the ethical requirements for ESG (environment, social and governance) investing. But the perception of what is ethical is shifting from narrow, ‘woke’ definitions. The sector is now seen as not only crucial to national security but to upholding civil liberties. Both these areas are central to the social part of ESG.

How will UK pay for defence bill?

After the fiery encounter between Donald Trump and Volodymyr Zelensky in the Oval Office, there can be no doubt that spending on defence in the UK will have to go up.

With the nation’s finances already over-stretched and the tax burden at its highest since the Second World War, this is tricky for Chancellor Rachel Reeves, whose Spring Statement is due this month. What can she do, and what might it mean for Britons’ personal tax bills?

Reeves said military expenditure would rise to 3 per cent ‘in the next Parliament’, ‘subject to economic and fiscal conditions’. How that will be funded was not spelt out as she faces a much more immediate challenge: balancing the books while sticking to her fiscal rules.

Reeves has three options. The first is to put up taxes. She will be tempted to extend the freeze on income tax thresholds and allowances beyond 2028, raking in an extra £4 billion a year, as rising wages drag workers into higher tax bands. She ruled it out in October saying it would hurt ‘working people’ but could seek to justify any U-turn by saying Trump’s pivot to Moscow and his threat to impose harsh tariffs on imported British goods had changed everything.

Her second option is to cut spending. Two thirds of the annual £510 billion day-to-day departmental spending is on protected areas such as health, education and defence, putting funding at risk in others. With foreign aid slashed, unprotected budgets include justice, police and environment agencies.

Her third option is to bend the rules. A bit of rule-bending might allow her to borrow more, rather than raise taxes or slash spending, without spooking financial markets.

One option is to keep defence spending ‘off the books’ – carving it out as an exemption. This is what the European Commission is planning, by arguing that it is not part of normal spending.

Patrick Tooher

BAG EUROPEAN BARGAINS

The threat of punitive trade tariffs on the EU hit its stock markets last week amid fears of a trade war. Nevertheless, if you are taking a longer-term look, it’s worth nothing that global fund managers expect these markets to outperform this year.

European companies will play a major role in the reconstruction of Ukraine. It is also expected that the wave of deregulation sweeping through America under the Trump administration will begin shredding the red tape that has Europe in its stranglehold.

Such reforms will not happen overnight. But, in the meantime the fortunes of European multinationals do not depend on their domestic economies, as these businesses operate on the world stage.

The Stoxx Europe 600 index is up by 9 per cent this year, while the FTSE 100 has risen by 7 per cent.

By contrast, the US’s S&P 500 index has risen by just 2 per cent.

Fidelity European, the investment trust, has stakes in big names such as German software group Sap, L’Oreal, Nestle and Hermes, maker of reassuringly expensive £10,000 handbags. Shares in the trust stand at an 8 per cent discount to its net asset value.

Individual European stocks seen by experts as bargain buys include ASML, a Dutch maker of semiconductor equipment, and Novo Nordisk, the Danish pharmaceutical giant behind weight loss drugs Ozempic and Wegovy.

Global sales of such drugs are forecast to exceed $ 200billion by 2031, almost regardless of the state of geopolitical conditions at that date.

MPs call for Russian assets to be seized for Ukraine rebuild

MPs including former Conservative leader Sir Iain Duncan Smith and Alex Sobel, chair of the all-parliamentary group for Ukraine, last night urged the Government to seize billions of pounds of Russian assets that are currently frozen to fund the war. It sounds like a no-brainer but how could it be done?

How much is involved?

Between £237 billion and £276 billion of Russian assets have been frozen since the invasion of Ukraine in 2022.

Where is it held?

More than £20 billion is held in UK-based accounts, while £174 billion, mostly reserves of the Russian central bank, is in Euroclear, a bank in Belgium.

Why seize these assets?

They could be used by Ukraine to buy weapons and supplies, and to help rebuild the country if and when the war ends. The UK uses interest on the assets it holds to help pay for supplies to Kyiv. The assets could be seized using emergency legislation.

So what’s stopping us?

Some officials in Europe caution against it and argue it could face legal challenges.

European Central Bank governor Christine Lagarde has warned it might break international law, and discredit the rules-based order in the West. Opponents in the UK say it will damage the City as a global financial centre, as other governments may fear their funds will also be seized.

Any reluctance to deposit assets in the UK or Europe could undermine the pound and the euro as global reserve currencies, and help nations such as China, which is trying to encourage more countries to hold reserves in its currency.

Calum Muirhead

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