The Chancellor, George Osborne, and the Governor of the Bank of England, Mark Carney, set out their views on the state of the economy in their annual speeches at Mansion House last night.
True Potential Investments’ Chief Investment Officer, Colin Beveridge, gives his personal opinion on what was announced:
“The move to sell down the government’s stake in RBS stake, even though at a loss, is good news. Banks owned by the state represent the worst form of state rule.
“Committing to running a budget surplus in ‘normal ‘ times is sensible management and symbolic of fiscal rectitude but defining ‘normal’ isn’t easy and managing cycles, as has been proven on several occasions, is next to impossible as the UK is hostage to broader global influences.
“It is difficult to predict the investment consequences of these speeches with any accuracy, as they do not define the future but put forward proposals. However, it seems likely that:
- Restrictions will be placed on the future supply of government debt
- The public sector will shrink further
- The private sector will find more room to flourish
“There will be push and pull on bond yields. Restricting supply could hold down bond rates for longer, but a stronger economy will exert upward pressure. In my opinion, the continuation of austerity will not tip the economy back markedly, as has been predicted ever since it started and been proved wrong.
“Domestic UK real assets will be the main beneficiaries. It is hard to predict the path of sterling, but if interest rates are expected to turn up, albeit slowly and with a lower peak this cycle, sterling should enjoy support from international investors.
“The bad news is the extension of the senior managers regime to wider areas in the financial industry. This ups the ante those affected should take careful note.”