Spring statement

Commenting on today’s Spring Statement, William Marshall, Chief Investment Officer, Hymans Robertson Investment Services (HRIS) says:

“Weaker GDP growth, lower tax take and higher gilt yields combined to erase the Chancellor’s headroom on her fiscal rules. The measures she took today restored that headroom to £9.9bn but that is still razor thin. The OBR halved its growth forecast for the year from 2% to 1%. The previous 2% figure looked overly optimistic compared to the consensus. 1% looks more reasonable and is closer to the Bank of England’s projections.

Weaker than expected inflation, announced this morning, may give a slight boost to the Chancellor if it leads to further interest rate cuts from the Bank of England (thereby lowering of interest costs for the government).

We expect gilt yields to remain volatile – for example, gilt yields initially fell on the inflation news. They then spiked during the Chancellor’s statement (due to concerns around how small the fiscal headroom remains), before falling again, as data showed gilt issuance was lower than expected.

For advisers the role that bonds can now play in investment portfolios, both in terms of targeting returns and managing risk, is important to consider. Opportunities associated with bonds are increasing as yields have risen, albeit investors will need to be careful in considering the timing of any allocations, alongside the specific bonds being considered.”