While the sun has been shining across most of the UK throughout June, recent economic news has been far from sunny.
It’s been the worries about embedded inflation which have proved to be the stickiest of wickets, as slowing growth is factored in to asset pricing and market sentiment. As the May inflation data showed, UK inflation at 8.7% is higher than that of the Eurozone, where headline inflation is 6.1% and also that of the USA, where headline inflation is 4%.
Concerns are rising that UK core inflation is becoming a problem. Questions are being asked as to whether a recession might be the end result of the measures which will be needed from the monetary authorities in their attempt to bring inflation back to target.
In response to the inflation data, the Bank of England’s MPC then fell into line with expectations with a 0.5% hike in UK base rate to 5% announced in June. This is its highest level since 2008 and the MPC’s thirteenth consecutive rate rise.
It seems just a few short weeks ago when, in early May, that the BoE Governor, Andrew Bailey, indicated that the UK could be near the peak for interest rates. Things are looking decidedly different now – something which has particular relevance for wealth managers. Consensus expectations indicate that UK base rates are now likely to exceed 6% later this year or in Q1 2024, adding to the cost of living crisis and creating further difficulties for businesses as well as consumers.
As we begin the second half of 2023, wealth managers are actively reviewing their asset allocation strategies in line with this changing economic and corporate news which is dominated by uncertainty.
Room for optimism?
In this edition of Wealth DFM, we bring you the analysis and opinions of a selection of leading asset managers. Fidelity International’s Andrew McCaffery shares his outlook for global markets, while RBC Wealth Management’s Frédérique Carrier points out some of the opportunities which she and her team have identified in UK and European markets. We’ve also got the latest fixed income analysis from Vanguard Europe’s Fixed Income Group about why they’re remaining cautious on corporate earnings. Starting on page , you’ll find our summary of highlights from the Wealth DFM webinar exploring what might be next for fixed income, which was held in conjunction with M&G Investments earlier this summer.
In the summer, in the city
As wealth managers will know only too well, periods of volatility, such as we’re living through at the moment, can often generate divergence from which investment opportunities in undervalued areas can emerge. As well as keeping a cool head, being constantly vigilant, having the support of a strong analytical team and maintaining flexibility on your approach are all key for fund selectors and investment managers this summer as they try to maximise returns through asset allocation in this era of growing macroeconomic and market volatility.
Editor | Wealth DFM