March 2016

Financial Data for March 2016:

Redemption yields on short-dated gilts imply interest rates will stay low until after 2019, which is at odds with noises from the Bank of England about interest rate rises. We think interest rates might start to rise at some stage over the next year or so as our slow economic recovery gradually strengthens. Over the same period we may see modest growth in the share market but with continuing volatility thanks to various issues including the slowdown in China, low oil price, EU referendum, military action in Syria / ISIL etc. The outlook of a difficult employment market combined with limitations on mortgage lending and the Chancellor’s attack on second homeowners / buy-to-let landlords may impede further recovery in the residential property market outside London.

Inflation remains low with RPI 1.30%; CPI at 0.30%. We are still concerned about the outlook for the UK fixed interest market which may show signs of weakness affecting gilts and investment grade corporate bonds in due course. The redemption yield for long dated gilts is extremely low at 1.78% pa which is very bad news for potential annuitants. This is due to high ongoing demand resulting from quantitative easing and final salary schemes seeking to secure liabilities. There is no guarantee the Bank of England will sell gilts back to the market, instead preferring to hold them to redemption, which could keep redemption yields low for a long time. The dividend yield on the UK FTSE All Share of 3.32% pa continues to exceed current gilt yields.

Of the fund manager house views this month European shares are most favoured, however we remain concerned over the outlook for Europe. An ongoing 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) 0.30%
Retail Prices Index (RPI) 1.30%
FTSE All-Share Index Dividend Yield (last 12 months) 3.32%
Exchange rates £1 buys €1.28 or $1.40
SHORT DATED GILTS (REDEMPTION YIELDS)
4.00% Treasury Gilt 2016 redeeming 07-09-2016 0.37%
8.75% Treasury Stock 2017 redeeming 25-08-2017 0.15%
5.00% Treasury Gilt 2018 redeeming 07-03-2018 0.20%
3.75% Treasury Gilt 2019 redeeming 07-09-2019 0.42%
LONG DATED GILTS (RED YIELDS)
4.75% Treasury Gilt 2030 redeeming 07-12-2030 1.78%
LONDON INTER-BANK OFFERED RATE
LIBOR 1 month 0.51%
LIBOR 3 months 0.59%
LIBOR 6 months 0.74%
LIBOR 12 months 0.99%
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 1 1 1 0 3
UK Property 0 1 2 0 0 3
UK Fixed Interest 0 1 2 1 0 4
Overseas Fixed Interest 0 0 3 1 0 4
UK shares 0 0 4 0 0 4
European shares 1 2 1 0 0 4
American shares 1 0 3 0 0 4
Japanese shares 0 0 4 0 0 4
Pacific (ex Japan) shares 0 2 1 1 0 4

Data gathered as at 01 March 2016. All figures given to 2 decimal places. Participating fund managers: Standard Life, Schroders, JP Morgan, HSBC Global Asset Management

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.