Our Views on the Markets and the Economy

How Herd Behaviour Affects Your Money

We are not quite the independent thinkers we like to believe we are. People value safety in numbers. And while imitating the actions of others is sometimes a good thing, we should be aware of how making decisions without thoughtful analysis can have a negative impact on our finances.

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Thoughts Ahead of the Budget

This coming week is the second Budget of the year, the first of the new Parliament and the penultimate one before the UK leaves the EU in March 2019. The UK may prolong its tenure in the EU through a yet-to-be-agreed transition deal, but even so we are just over half-way through the Article 50 Process.

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Most of us are programmed to be afraid of taking too much risk. Yet when it comes to our money, not taking an appropriate amount of risk can be damaging to our wealth.

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As the dust settles on last week's interest rate increase from the Bank of England, what are the implications? The day after the rate hike both the FTSE 100 and the 250 indices closed at record levels. The latter is particularly impressive, as it covers the top 250 firms listed in the UK and thus suggests the corporate sector is in good shape.

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The beginning of this week saw President Trump arrive in Japan to begin an extensive tour of the East Asia region. Following Japan he will visit South Korea, China, Vietnam and the Philippines.

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Bank of England Raises Rates

Yesterday, for the first time in more than a decade, the Bank of England Monetary Policy Committee voted by a majority of 7-2 to raise UK interest rates by a quarter point, from 0.25% to 0.5%. It was a move that has been well signalled by the Bank in recent weeks and thus it was widely expected by the market.

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Noise is the enemy of information – a premise that is especially true for investing. Cutting through the noise and listening to what matters is critical for those who want to invest with clarity and not be distracted by sounds which are irrelevant to their objective.

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Rising longevity and low interest rates are stirring up a perfect storm for investors – but a few smart decisions could generate a sustainable income for an extra 10 years or more in later life.

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Update on the UK

For much of the last nine years since the global financial crisis, economies in the west have witnessed the three L’s of low growth, low inflation and low interest rates. The UK has, for much of this time shared in this, even though along with the US, growth has been significantly higher than in the euro area or Japan.

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The US Federal Reserve has been on a path of tightening monetary policy since December 2015. We think 2018 will signify tightening of monetary policy by developed market central banks on a more synchronised basis. The Fed will continue to hike rates and reduce the size of their balance sheet and the European Central Bank (ECB) will reverse their printing of money by tapering their Asset Purchase Programme. Meanwhile the Bank of England (BoE) is likely to raise policy rates, possibly as soon as this November, reversing the emergency cut implemented following last year‘s EU referendum and they could tighten further yet gradually through 2018.

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