November Commentary

The Bank of England has finally decided to raise interest rates from their historically low levels, the first increase since the financial crisis a decade or so ago. The Bank’s reasons are twofold, the first being to seek to head off any significant return to higher inflation levels while they are also very aware of increasing, and if not checked, worrying levels of consumer debt. We think it unlikely that there will be any further increase for a while but this reversal of the trend towards ever lower interest rates is likely, we believe, to signal the beginning of the end of multi decade supportive conditions for fixed interest markets. It is for this reason that we continue to advise clients to hold underweight positions in fixed interest investments.

The move towards higher interest rates is further advanced in the USA while within the Eurozone, quantitative easing is being reduced so that a trend towards tighter money is slowly becoming more established.

The outlook for equities is generally supportive. Company profits are in the main continuing to rise (as ever with some exceptions) and while equities are not inexpensive, global growth is reasonably encouraging without there being any evidence of major overheating.

Returning to UK matters, the budget towards the end of this month appears unlikely to contain many major surprises or great changes in respect of personal taxation. It is however possible that, as a consequence of growing pressure both within and outside the government, moves to accelerate house building may be announced. In essence, the Chancellor faces a particularly difficult budget round given that the outcome of the Brexit negotiations remains absolutely unknown, creating significant difficulties for all involved in budgeting processes, be that the government, corporations or indeed individuals. We continue to be encouraged by the fact that a very large percentage of the profits and turnover of most of the UK’s larger companies (and many of the mid cap ones) are derived from their global activities, enjoying a level of protection that purely UK focussed companies do not.