March 2016 Update
Slow economic growth forecast for 2016
The main factor to affect UK shares during March was a rebound in oil, iron ore and gold prices, which led to renewed investor interest in mining and energy companies. Aside from the recovery in commodities, other issues included monetary stimulus from the European Central Bank (ECB) and, in the UK, the 2016 Budget announcement.
The Budget contained several factors that could affect investors, including significant changes to the business tax regime. A reduction in the rate of corporation tax was welcomed, as were additional tax incentives for small businesses. However, various rule changes will result in significant tax increases for large companies in coming years.
But the focus was on the economic outlook. Forecasts from the Office for Budget Responsibility indicated that the rate of growth of the UK economy is slowing. The forecast for gross domestic product growth for 2016 was revised down to 2%, from 2.4%. This will make it increasingly difficult for Chancellor George Osborne to meet his promise to deliver a fiscal surplus of £10.4 billion by the year 2020.
Attempts to tackle the challenges of slow economic growth were also front of mind in Europe. The ECB announced a series of measures to stimulate the ailing Eurozone economy.
The ECB cut all three of the interest rates it controls, including a reduction in the overnight deposit rate for commercial banks from -0.3% to -0.4%. The central bank also increased the scale of its quantitative easing programme by €20 billion per month. It will now inject €80 billion a month into the financial system by buying government bonds and corporate bonds from financial institutions.
Later in the month, a series of deadly explosions in Belgium killed 32 people and hundreds more were injured. This created some volatility in the markets as well, although most European markets closed the month higher.
Much of the movement in the bonds market during March was centred on the Eurozone. The ECB’s plethora of new measures, aimed at bolstering growth and inflation, initially drove government bond prices sharply higher and yields lower. However, at the press conference accompanying the announcement ECB president, Mario Draghi, stated that he did not anticipate cutting interest rates further – a comment that prompted a sharp reversal of the market moves. Nevertheless, the 10-year German Bund yield was subject to considerable intra-month volatility, ranging from a low of 0.11% to a high of 0.32%.
Should I make any changes to my investments?
Everyone’s circumstances are different and we aren’t able to give you advice on what is appropriate for you. As always, if you are considering your own position, you should remember why you invested in the first place and consider the lifespan of your investments. Most importantly, you should seek financial advice before making any changes to your investments.
One way in which you can help reduce the impact of any market volatility is to spread your investments across different asset classes and regions. For more information about investing across different asset classes, take a look at our An introduction to diversification in multi-asset funds guide.
Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, you can find one local to you by visiting find a financial adviser, which is responsible for promoting financial advice in the UK.
All figures quoted are in sterling terms to 31 March 2016 unless otherwise stated.
The information contained in this article has been derived from sources which we consider to be reasonable and appropriate. It may also include our views and expectations, which cannot be taken as fact.
Investment markets and conditions can change rapidly and, as such, the views expressed in this update should not be taken as statements of fact nor be relied on when making investment decisions. Forecasts are opinions only, can not be guaranteed and should not be relied on when making investment decisions.