Brian’s Brainstorm
The General Election and your Investments
The forthcoming general election might have a perverse influence on your investments. The way the media has portrayed the campaign, you might be inclined to believe that a larger Conservative majority, say in excess of 100 seats, would have a favourable impact on your investments. However the reality today is that since the Brexit referendum the most important driver of investment performance has been the exchange rate. Put simply a fall in the pound particularly against the dollar is bullish news for the FTSE 100 index. A weaker pound means that dollar earnings of FTSE 100 companies are worth more to a sterling based investor; also the fall in sterling boosts the competitiveness of British exporters in overseas markets.
Now we know pollsters have got it wrong in the recent past; this time anything other than a Conservative overall majority would be considered a much bigger upset than Brexit or Trump. At the moment you need to wager £100 to realise a £9 profit on a Consevative overall majority.
But the significance of an expected larger Conservative majority is unclear. When the election was announced the foreign exchanges jumped to the conclusion that a strengthened Prime Minister would have more support to pursue a better Brexit deal for Britain. Whether this is the correct interpretation is anybody’s guess; nevertheless the pound jumped 2.7% on the announcement.
So it is quite possible that a significantly increased Conservative majority could be greeted with a rally in the pound but a fall in UK blue chip equities and a fall in the sterling value of your overseas investments.
Meanwhile there is no meaningful correlation between political outcomes and investment performance. The 100 seat majority enjoyed by Mrs Thatcher in 1983-87 coincided with a 150% plus gain in the UK stock market; while Tony Blair’s 2001-05 term experienced a 16% fall. So the actual significance of a 100 plus majority will have a less significant impact on your investments than what happens to sterling.
Staff Matters
- After many months of thinking about training, putting off training, and then eventually getting around to training we had to lace up our shoes and do the Great Manchester Run.
- We all achieved some fantastic times and had to spend a few days recovering from our efforts. Good job it was a Bank Holiday!
- There is still some time left to sponsor us with all proceeds going to Headway, a fantastic charity who were kind enough to send us some rather fetching running vests which you can see us modelling below
Statistical Information
| Last Month | This Month | Change | |
|---|---|---|---|
| CPI | 2.3% | 2.7% | +0.4% |
| RPI | 3.1% | 3.5% | +0.4% |
The Consumer Prices Index (CPI) measure of inflation has now reached its highest level since the Autumn of 2013, growing by 0.4% from the previously released figures.
The prices of clothing, electricity, and food all increased, which contributed to the inflation rise. At the same time the Office for National Statistics recorded falls in the cost of gas, petrol and diesel.
| March 2017 | May 2017 | Change | |
|---|---|---|---|
| Base Rate | 0.25% | 0.25% | 0.00% |
The Monetary Policy Committee (MPC) voted 7-1 to keep the Base Rate at 0.25%. Following on from last month, Kristin Forbes was again the only member who voted to increase the Base Rate.
May also saw the Bank of England release its Quarterly Inflation Report. The document warned that inflation would peak at 2.8% this year and combined this expectation with one of real wage stagnation. With households caught in the middle, consumer spending is expected to be hit.
The MPC is next due to meet on 13th June.