Last week saw a ‘mini-budget’ delivered by the Chancellor.
It’s been widely reported but in summary there were a series of tax cuts for both companies and individuals. Markets had largely expected a modest to moderate easing adjustment to the UK tax system; Kwasi Kwarteng was far more aggressive with the fiscal easing. This has resulted in investors reassessing the UK’s fortunes and sterling and UK government bonds reacted accordingly.
It wasn’t just the UK that fell. Most markets and asset classes are in decline as interest rates rise around the world. Rates are rising sharply for the first time in a long while. Investors have enjoyed a good run since the global financial crisis, with the odd dip over time. Investing requires you to take risk, and that means investments will sometimes fall in value. How long it will be is hard to tell, but over time, the cycle will progress and mature.
Key Points:
• Sterling and gilts have fallen sharply after new chancellor Kwasi Kwarteng announced wide ranging tax cuts
• Sterling and most developed market currencies have been under pressure from a very strong dollar
• Financial markets are concerned about the rapid rise in the amount of new gilts that may be needed to pay for the tax reforms, in addition to the cost of the energy cap
• Inflation is beginning to show signs of slowing down
• The government’s energy price cap should act to significantly reduce headline inflation
• Falling energy costs could dramatically reduce the cost of the energy cap and ease government borrowing requirements.
For the following stories, please click on this link*
- The Markets’ response
- The impact of the energy cap
- The role of bonds and gilts in our portfolios
- How can we succeed in an inflationary environment
- Bonds have fallen, but equities have held up
(*Please note: We are grateful to Edward Margot, Head of Client Investment Strategy at FE Investments, for the contents of this e-shot. The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)
No comment yet, add your voice below!