I would like to take this opportunity to provide you with some commentary following the recent market movements we have witnessed in response to the government’s “mini budget.”
 
Much of what the Chancellor announced by way of tax cuts, such as the reversal of both the National Insurance and Corporation Tax hikes, had already been well-trailed by the media and were priced in by financial markets.
 
However, what appears to have caused such consternation for investors is that the Chancellor offered no concrete plan for reducing the nation’s debt burden over time and claimed that further tax cuts would be unveiled in the near future.
 
In the wake of the announcement Sterling fell to its lowest ever level against the US Dollar and the yield on UK Gilts (government bonds) rose dramatically.
 
It is worth noting that almost all currencies have depreciated against the Dollar and almost all government bond yields have risen since the start of the year. However, the moves in UK assets were more pronounced.
 
Evidently the markets are expecting higher inflation and higher interest rates as a result of the government’s policy.
 
It is understandable that such volatile moves in financial markets are unnerving, especially with such frenzied media coverage, but episodes such as this can and do happen when financial markets are taken by surprise and need to re-evaluate quickly.
 
Tempting as it is to want to make wholesale changes to your investments we believe that would be a mistake and the more appropriate response is to remain invested in a portfolio diversified across asset classes and regions of the world.
 
We cannot predict how the government’s policy will evolve, nor can we predict how the market will react to the Bank of England’s next interest rate decision. However, the long term return on offer from stocks and bonds is more predictable.
 
As we have seen from episodes in the past, whether that be the UK crashing out of the Exchange Rate Mechanism, the global financial crisis, or the start of the COVID pandemic, investments do recover over the ensuing years once the initial shock has subsided.  
 
I hope you have found this update to be useful. Should you have any queries concerning these matters then please do not hesitate to contact us.
 
Statement issued on 29/09/2022 by:
 
Nigel Foster, DipPFS
MANAGING PARTNER