December 2014

Financial Data for December 2014:

Redemption yields on short-dated gilts imply that interest rates will start rising at some stage over the next 12 months or so as our economic recovery gradually strengthens. Over the same period we may see modest growth in the share market with continuing volatility. The outlook of a difficult employment market and limitations on mortgage lending may however impede further recovery in the residential property market outside of London.

Inflation has changed little with RPI at 2.30% and CPI at 1.30%. We remain concerned about the outlook for the UK fixed interest market which is experiencing a period of weakness affecting gilts and investment grade corporate bonds. The redemption yield for long dated gilts has dropped to 2.32% pa which is bad news for potential annuitants. This is due to high ongoing demand through quantitative easing and final salary schemes seeking to secure liabilities. We think long dated gilt yields may improve over the next 3 years or so through changes to pensions legislation and other asset classes becoming more favourable leading to a reduction in demand, however future final salary scheme closures and the Bank of England failing to sell gilts back to the market may delay that. The dividend yield on the UK FTSE All Share of 3.45% pa continues to exceed current gilt yields.

Of the fund manager house views this month UK Property, American shares and Japanese shares are most favoured. An on-going concern remains national debt, our Chancellor and finance ministers across Europe and in the US must continue to work to persuade investors debt is being brought under control.

GENERAL RATES
Bank of England Base Rate of Interest 0.50%
Consumer Price Inflation (CPI) 1.30%
Retail Prices Index (RPI) 2.30%
FTSE All-Share Index Dividend Yield (last 12 months) 3.45%
Exchange rates £1 buys €1.26 or $1.57
SHORT DATED GILTS (REDEMPTION YIELDS)
8.00% Treasury Stock 2015 redeeming 07-12-2015 0.37%
4.00% Treasury Gilt 2016 redeeming 07-09-2016 0.52%
8.75% Treasury Stock 2017 redeeming 25-08-2017 0.68%
5.00% Treasury Gilt 2018 redeeming 07-03-2018 0.89%
LONG DATED GILTS (RED YIELDS)
4.75% Treasury Gilt 2030 redeeming 07-12-2030 2.32%
LONDON INTER-BANK OFFERED RATE
LIBOR 1 month 0.50%
LIBOR 3 months 0.55%
LIBOR 6 months 0.68%
LIBOR 12 months 0.97%
NATIONAL SAVINGS & INVESTMENTS
3 Yr Index-Linked Savings Certs offering RPI + Not in issue
5 Yr Index-Linked Savings Certs offering RPI + Not in issue

Fund Managers – Current House Views on Different Asset Classes

Asset Class Positive Slightly + Neutral Slightly – Negative Total Views
Cash 0 0 0 2 0 2
UK Property 0 2 0 0 0 2
UK Fixed Interest 0 0 1 1 0 2
Overseas Fixed Interest 0 0 2 0 0 2
UK shares 0 1 1 0 0 2
European shares 0 0 2 0 0 2
American shares 0 2 0 0 0 2
Japanese shares 0 2 0 0 0 2
Pacific (ex Japan) shares 0 0 2 0 0 2

Data gathered as at 01 December 2014. All figures given to 2 decimal places. Participating fund managers: Schroder, Standard Life

DISCLAIMER: Please note, whilst every effort has been made to ensure the information contained in this document is correct, sometimes the information given to us by third parties is inaccurate. We cannot therefore be held responsible for the accuracy of this information and it should not be relied upon for making any decisions.