October 2016

Financial Data for October 2016:

The Bank of England cutting the base rate of interest to 0.25% and low redemption yields on short-dated gilts imply that interest rates will remain low for the next few years amid concerns about the health of the UK economy following the EU referendum. Over the same period we may see modest growth in the share market with continuing volatility, helped in part by the weakness in the pound. The outlook of a difficult employment market, limitations on mortgage lending and tax changes penalising buy-to-let investors may however impede further recovery in the residential property market.

Inflation measured as RPI is at 1.80% and CPI at 0.60% and may increase further due to the effect of the weakening pound on UK imports. 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 historically low at 1.17% pa which is bad news for potential annuitants. This is due in part to quantitative easing and 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. Some of the commercial property funds suspended following the EU referendum have been begun trading again, however uncertainty over the UK economic outlook may affect them in the future. The dividend yield on the UK FTSE All Share of 4.25% pa continues to exceed current gilt yields.

Of the fund manager house views this month none of the asset classes are particularly favoured. Ongoing concerns are the impact of BREXIT, the slowdown in the Chinese economy (is it a hard or soft landing) and the US election.

GENERAL RATES
Bank of England Base Rate of Interest 0.25%
Consumer Price Inflation (CPI) 0.60%
Retail Prices Index (RPI) 1.80%
FTSE All-Share Index Dividend Yield (last 12 months) 4.25%
Exchange rates £1 buys €1.14 or $1.29
SHORT DATED GILTS (REDEMPTION YIELDS)
8.75% Treasury Stock 2017 redeeming 25-08-2017 0.07%
5.00% Treasury Gilt 2018 redeeming 07-03-2018 0.08%
3.75% Treasury Gilt 2019 redeeming 07-09-2019 0.08%
3.75% Treasury Gilt 2020 redeeming 07-09-2020 0.13%
LONG DATED GILTS (RED YIELDS)
4.25% Treasury Gilt 2032 redeeming 07-06-2032 1.17%
LONDON INTER-BANK OFFERED RATE
LIBOR 1 month 0.27%
LIBOR 3 months 0.38%
LIBOR 6 months 0.53%
LIBOR 12 months 0.76%
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 1 1 1 3
UK Property 0 0 0 2 0 2
UK Fixed Interest 0 1 2 0 0 3
Overseas Fixed Interest 0 0 3 0 0 3
UK shares 0 1 1 1 0 3
European shares 0 0 2 1 0 3
American shares 0 0 2 1 0 3
Japanese shares 0 1 1 1 0 3
Pacific (ex Japan) shares 0 0 2 1 0 0

Data gathered as at 03 October 2016. All figures given to 2 decimal places. Participating fund managers: Standard Life Investments, Schroders, JP Morgan 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.