Last quarter I suggested that it was unlikely that the Bank of England would raise interest rates – how wrong I was, when not only were rates cut to one-quarter of a percentage point, but also accompanied by a £70 billion injection of Quantitative Easing (QE). Mark Carney’s unprecedented intervention was probably more about retaining some credibility following his gloomy pre-referendum forecasts; however, the subsequent fall in sterling has hurt domestic companies giving some credence to the Bank’s arguments.
One of the consequences for such low interest rates are the possibility that we enter into the realm of negative interest rates, which could have severe implications for our investment managers as cash has typically been held as a defensive asset class – but if we are going to be charged to hold cash, we will have to consider alternative investments. I have written about this in more detail here; in addition, John Royden shares his thoughts on the implications of the recent rate cut, and speculates that the rate cut gets reversed.
Last quarter I suggested that it was unlikely that the Bank of England would raise interest rates – how wrong I was...
Events of the last quarter continue to leave a taste of uncertainty within the investing world. I believe that leaving Europe should have little effect on the profits of international conglomerates, but on the other hand, the UK might evolve into a safe haven within Europe in due course so property prices could eventually recover quite strongly, bringing other sectors along too. The key unknown is still how Europe will react and the extent to which Brexit impinges on the future of the single market.
I am fairly sanguine about what has happened and anticipate a long wait before seeing how the long term consequences develop. I do not consider Brexit will profoundly affect the profitability of most companies and thus the ultimate prosperity of our markets.
One opinion that seems to be a constant amongst commentators is the fact that London will retain its dominance in the global financial services scene, as mentioned by Neil MacKinnon, but also supported by John Royden’s slightly more diverting theory of financial centres.
One certainty is the transition to a new season, as we say goodbye to Summer, and this quarter we feature the Head of Arboretum at the Royal Botanical Gardens, Kew which is hosting the second annual literary festival, Write on Kew, supported by JM Finn & Co.
As ever, we welcome enquiries from new clients and it is no surprise to us that most of these originate as referrals from existing clients. I expect more in the near term as investors seek solutions that might compensate for the lack of returns on cash in the bank.
Jon Berkeley/Debut Art
Jon Berkeley is a renowned illustrator who regularly contributes to publications such as The Economist.
Published by JM Finn & Co on 16th September 2016
Shutterstock images, Kew Gardens image library, Getty images