24th April 2017

UK Economic Picture Darkens

Friday morning saw another piece of poor economic data for the UK: retail sales slowed 1.4% quarter on quarter.

We have also seen two consecutive months of decline in the index of production, whilst inflation is over the BoE’s target, with the potential for further rises to come. Exports have fallen the last two months despite sterling’s weakness. This is how economic cycles end: a steady drip of poor data points until the overall picture changes.

However, with employment still robust, there is still the hope that this is just a temporary slowdown. Bears should be watching the bond market: yields have been slipping again on gilts as fixed income investors become wary about the economic picture.

This gives us further confidence they will continue to diversify our equity exposure. Should this slowdown prove to be serious we could see substantial gains in safe haven government bonds, and gilts are still over 50 basis points above last year’s lows.

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Market Commentary

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