Market update

My name is Trevor Greetham. I'm Head of Multi Asset for Royal London Asset Management. I'm going to speak to you for the next few minutes about what's happening in the world economy, and the impact on your investments.

The world economy has been in stagflation for the last year, or so. What that means is, it's a slow down, but with rising inflation.

Inflation has been rising for two reasons. Firstly, central banks were quite late to raise interest rates in the more inflationary, post-COVID recovery, because they didn't think inflation would last. And then we have the invasion by Russia of Ukraine, which pushed energy prices much higher.

The situation we've seen this year has been slow down with high inflation, and central banks raising interest rates to try to cool things down.

That's created quite a lot of volatility, particularly in bond markets, although your portfolios are not as exposed to bond markets as many because we have a very broad approach to diversification. We spread your investments across bonds, stocks, but also commercial property and even commodities.

Going forward, we think there is likely to be a slow down. And in the UK there is quite a special situation, where after the announcement of the fiscal event by the new Chancellor the pound weakened quite a lot and the cost of government borrowing rose quite a bit. And all of that suggests that the Bank of England could be raising rates much higher than previously expected.

So we do think there's going to be a slow down and potentially a recession globally, but some parts of your portfolio are likely to start performing better as time moves on. In particular, once it's obvious that central banks have raised rates enough, we'd expect government to start performing better and some parts of the global stock market tend to do well when long-term interest rates are dropping. So, some of the stock market exposure you have will start to improve as well. And then, when those interest rate cuts, that will come in a slowdown or recession, start to take effect you'd expect property prices, and stock prices generally, to improve further.

So, the main message is that you have a wide spread of investments, a mix of investments that has been designed for a lot of different economic situations and we've been through many different combinations of influence over time. We manage the investments actively to try to improve returns and move money away from areas, which we think are more exposed. As time goes forwards, there will be better news to give when the world economy starts to see inflation lower, and interest rates come back down again.

As usual, we will keep you in touch with our thinking and what's going on in the markets as the situation develops.