Independent UK and You
Democracy has spoken and a new era begins for UK Plc. For our clients lots of questions arise and as we have done before, we are here to guide you through the threats and opportunities that will arise.
First of all, it is important to put the immediate reaction of the financial markets in context, as mainstream media has, so far, not done that. The two main UK indexes, the FTSE 100 and 250 were both higher at close of business Friday than they were on 16th June, just one week beforehand. In January and February both were considerably lower.
For businesses, the immediate thought is that a weaker Pound will push up costs for importers. Conversely however this will also reduce prices of our exports which will encourage trade and this is good for our economy.
However, currencies, markets and most asset classes will continue to be volatile and will be trading with a ‘Brexit Discount’ for a good while as the ‘new’ UK takes shape.
Against this we must all remember that the UK will still be located in Europe, has a proud history and many reasons to believe that we can all prosper as an independent nation that negotiates its own deals.
These conditions will have varying impacts and present differing opportunities for our client’s dependent upon your particular objectives and planning. We have grouped our comments under the headings below so that you can judge which is more appropriate to you and have first provided comments on the revised short term outlook for Inflation and Interest Rates.
It now seems inevitable that inflation will rise as the cost of goods increase due to a weaker pound. Without good Financial Planning, inflation is often the risk that is forgotten when in fact its impact should be right at the forefront. Those that have cash based investments are hardest hit by higher inflation.
The Bank of England has made available &250bn of additional capital to aid fiscal policy. It is likely that base rate may reduce from its current all time low of 0.5% within 6 months. This is the opposite to what the governor would like to do, as the bank had hoped to raise rates as soon as inflation was looking likely to rise. Lowering base rate is likely to further weaken the pound. Therefore, the UK may be unable to control inflation as it would like to.
Our view is that lower UK base rate may not mean lower mortgage interest rates as many lenders have minimum base rates and will use the opportunity to increase margins. Fixed rate money is based upon longer term ‘swap’ rates, due to perceived weakness in UK banks, rates may increase so fixing at todays low rates is the best way to gain peace of mind.
Clients that are Accumulating Wealth
If you are generating income above your expenditure and are saving surpluses, with or without the help of your employer, you are in the accumulation phase.
Assuming that the UK can eventually make a success of its new ‘independent’ status you are well placed to capitalise by buying assets at prices that are effectively discounted due to the short term uncertainties that Brexit brings.
Our understanding of financial markets will enable us to identify and capitalise upon the opportunities for your benefit by adjusting our asset allocations accordingly.
Clients with liquid capital that wish to capitalise upon opportunities - The Brave
If you have capital available, time on your side and like to speculate, you might want to consider how best you profit from the opportunities that have and will continue to arise.
If you wish to move monies from cash into well constructed portfolios, but are unsure about the short term impact of volatility, you may prefer to phase investments over a period of say 3, 6 or 12 months. This was a tactic we used very successfully for clients during the 2007 to 2009 financial crisis.
Clients that have accumulated their wealth and are now in or are fast approaching the decumulation stage
You are in the group that understandably will be most concerned by the short term impacts as your current or future income may be reliant upon a level of investment return above inflation.
The first thing to say is that any anxiety or concerns you have are absolutely normal and something we have seen many times before having guided our clients through many challenging periods before as many of you can testify.
For those in this group, it is important that we focus on your objectives so that you can continue the lifestyle that you wish to enjoy.
This may mean using different assets to provide short term income, or utilising index linked gilts alongside dividends from equities to provide your income needs.
You can be certain that we will be doing all we can to assess what is going to be a fast moving and changeable period. This will include significant amounts of research and studies so that we are positioned to assess what is happening and its future impact so that we can secure the best outcomes for our clients.
What is absolutely clear is that the people have spoken and everyone needs to pull together, be proud and contribute to making Independent UK as strong as it can be.
Whether this is the outcome that we individually voted for or not, we all have a part to play.