Financial Data for July 2015:
Redemption yields on short-dated gilts imply that interest rates will start rising at some stage over the next few years as our slow 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 remains low with RPI at 1.00% and CPI at 0.10%. We remain concerned about the outlook for the UK fixed interest market which may show signs of weakness affecting gilts and investment grade corporate bonds. The redemption yield for long dated gilts remains low at 2.43% pa which is bad news for potential annuitants. This is due to high ongoing demand resulting from quantitative easing and final salary schemes seeking to secure liabilities. Long dated gilt yields might 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 3.42% pa continues to exceed current gilt yields.
Of the fund manager house views this month UK Property and European shares are most favoured, however we remain very concerned over the outlook for Europe. 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.
Fund Managers – Current House Views on Different Asset Classes
Data gathered as at 01 July 2015. All figures given to 2 decimal places. Participating fund managers: Standard Life, Schroders
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