Along with uncertainties in Europe (the Italian referendum result increases uncertainty, while there are elections in Holland and France in the Spring and in Germany later in the year), the UK also has to deal with Brexit issues which will remain unresolved for a considerable period of time. Against this background, the Chancellor’s autumn statement, set against forecasts provided by the independent Office for Budget Responsibility, painted a cautious picture in respect of the government’s finances. Growth is expected to slow next year as Brexit uncertainties continue, government borrowing will be higher than forecast over the next few years but none the less space has been made for an increase in infrastructure spending, housing development and the living wage while we can expect reductions in corporation tax and income tax for many by 2020.
Extra borrowing puts further upward pressure on interest rates which have anyway been creeping up over the last few months. This in turn makes the backdrop for fixed interest values look a little less certain and as a general view our advice is to continue to remain overweight in equity markets. In this, we are encouraged by indications of some relatively strong US and UK third quarter earnings figures and the potential for dividend increases next year as overseas earnings translate into increased sterling profits as a consequence of the currency’s devaluation.
Investors have to take a degree of risk in order to have a prospect of achieving a decent return on capital. We believe that this can be ameliorated to an extent by the use of absolute return investment. Achieving an overall balance that bests suits each individual client’s needs, length of view and approach to overall risk, remains our key objective.