October Commentary

In the end, and after much speculation, interest rates in the USA were not increased in September although the Federal Reserves board was divided on the issue with apparently several members voting for an immediate rise. However, markets generally reacted positively to the news of a delay but it is now reasonably likely, although some way from being certain, that there will be a change in December unless US economic data deteriorates in the interim.

Low interest rates in the US have a significant and generally positive impact on global markets, including on UK equities, an area in which a majority of clients are invested. Teresa May has now announced when the UK plans to progress Brexit, but there is as yet very little information on how. The soft Brexit approach would see the UK remain in the single market (and in the banking and customs unions probably), while hard Brexit would see the UK applying for World Trade Organisation membership (which cannot be progressed in detail while we remain in the EU). This is a potentially much more disruptive route requiring a re-establishment of trade agreements globally – a long and difficult process. In the meanwhile, however, it is increasingly pertinent to remind investors that, to a substantial extent, UK based companies derive the bulk of their turnover and profits from their overseas activities, leaving them well able to cope with UK uncertainties at this stage, while fixed interest markets continue to find support from the low interest rate environment.