Economic activity is, in many parts of the globe, accelerating at a sensible rather than an unsustainable rate. This is true in particular in the US and in the Eurozone, while China’s history of strong growth continues to look sustainable. Despite this, inflation generally remains modest but central bankers are increasingly turning their thoughts to monetary tightening activities, in terms of beginning to reverse quantitative easing (in the US in particular) and to gently increasing interest rates in order to send a signal of their intent to avoid a return to overheating.

Equity markets are generally interpreting this positively with US markets in particular being further supported by the promise of tax cuts. Fixed interest markets on the other hand remain cautious.

In terms of growth, the UK economy is standing out as a disappointing exception. Here growth is slowing, businesses and consumers are no clearer than they were a year ago as to how the economy might evolve over the next five to ten years and it seems unlikely that key issues are going to be resolved in the near future. In the meanwhile, difficulties facing the UK in terms of negotiating international trade deals have been thrown in to stark relief by the Bombardier situation. While final resolution to that question will not be clear until the winter months, it is very evident that the outlook for the UK economy is anything but clear cut.

Our interpretation of all of these issues leads us to begin to reduce both fixed interest and UK equity weightings within portfolios, but of course many UK companies earn a very substantial portion of their earnings from activities overseas, providing useful protection from some of the UK’s problems. Thus our approach is one of careful revision rather than wholesale alteration.