|
Equities have recovered strongly from the tariff shock earlier in the year. Dollar weakness vs Sterling has weighed on the relative performance of US equities; however, this was a step-change and there are concerns for Sterling too. Gold has continued to perform very strongly on the “debasement trade” and Central Bank buying. Within Bonds, Emerging Markets are in better shape than Developed Markets, in our view.
Long-term UK gilt yields are rising despite falling inflation expectations and BoE rate cuts. Explore how debt sustainability concerns and reduced demand for bonds are driving this unusual market shift.
 Some platforms pay decent rates on cash. Others trouser the "net interest margin" - when the interest they earn on platform cash is more than they pay on platform cash. This is something the FCA has flagged in a Dear CEO to platform providers when the rates have been unfair to Consumers.
So, advisers: if you like a platform, but don't like their cash rates, then consider smarter cash management solutions. Basic rate taxpayers: if your client is a basic rate taxpayer then use a money market fund. This is a way of accessing wholesale sterling money markets, whilst disintermediating the banks who have a regulatory requirement to hold money markets too. Additional or higher rate taxpayers: if your client is an additional or higher rate taxpayer then use near-term low-coupon direct Gilts. The capital and interest is guaranteed by HM Treasury, and the amounts are unlimited. Their low coupon means the bulk of the quoted "Yield To Maturity" is capital gains which are CGT exempt for Gilts, meaning higher overall Gross Comparable Yield relative to money markets and cash for higher rate taxpayers. By sticking to near-term (<3 year) gilts, there is very low (<3 year) duration risk. 
Although the Bank of England cut rates, long-dated Gilts yields are rising (so their values are falling).
Whilst there have been structural and trading shifts driving Dollar weakness, there is downside risk to Sterling too.
Where next for the UK economy? Hermione Taylor outlines the challenges at our Elston Investment Forum 2025.
Read on for more details. 
Our latest monthly commentary for investing in UK gilts. Includes latest gilts UK news. Update on latest gilt yields. Changes in Gilt yield curve. Gilts auction results. Gilts ETF flows. For UK financial advisers.
 In this podcast for FT Adviser, Henry Cobbe explores the idea of an Operation Brit-Twist.
Listen to The Asset Allocator Podcast here 
Our latest monthly commentary for investing in UK gilts. Includes latest gilts UK news. Update on latest gilt yields. Changes in Gilt yield curve. Gilts auction results. Gilts ETF flows. For UK financial advisers.
Elston Consulting, the investment solutions provider supporting UK financial advisers, today announces the publication of its White Paper “Operation Brit-Twist: How the issuance of more Ultra Low Coupon Gilts could attract UK Retail investor demand to help reduce the size and cost of UK Government Debt. The white paper is available here.
Click read more to read the summary. 
Our latest monthly commentary for investing in UK gilts. Includes latest gilts UK news. Update on latest gilt yields. Changes in Gilt yield curve. Gilts auction results. Gilts ETF flows. For UK financial advisers.
Our latest monthly commentary for investing in UK gilts for UK financial advisers.
Includes:
The “Mar-a-Lago Accord” is a concept, not an event. Some are advocating a new currency accord and debt restructuring to fix the US balance sheet.
Elston explores how advisers can buy UK gilts directly for their clients In this article and CPD webinar.
 The Bank of England, the UK's central bank, today cut rates by 25bp from 4.75% to 4.50% on weaker than expected economic growth. What is the market reaction?The market reaction is an increase in the FTSE 100 for two reasons: firstly lower borrowing costs are positive for corporate earnings, secondly Sterling has weakened on the news (reflecting the weaker economic growth outlook). Because FTSE 100 companies have predominantly USD-linked earnings, the translation effect makes the FTSE 100 look higher when Sterling weakens relative to the Dollar. What is the outlook for the UK economyWe focus on the three key macro drivers for the UK economy: Growth, Inflation and Rates. The Bank of England's central projections consistent with the MPC's forecast were changed as follows, relative to their November 2024 meeting: 2025 GDP Growth was downgraded from +1.50% to +0.75% 2025 CPI Inflation was upgraded from +2.75% to +3.50% The expected interest rate at the end of the three forecast period were increased from 3.50% to 4.00%. In summary this shows lower growth, higher inflation and higher terminal rates. (See chart) Might the Bank of England cut more?The Monetary Policy Committee (MPC) vote was 7-2 in favour of a 25bp cut. Interestingly 2 voted to cut rates even deeper by 50bp to 4.25% to support economic growth SummaryAfter being slow to respond to the inflation shock in 2022, it now looks as though the Bank of England may have overtightened relative to growth and is now exposed to "stagflation risk". Stagflation is when the economy is caught in a lower growth and higher inflation trap. This will be a challenge for policymakers to navigate.
 Subscribe to our weekly newsletter to get all our insights to your inbox (for UK financial advisers only)
[5 min read, open as pdf] Macro factors: growth, inflation and rates
The three key macro drivers that impact markets are Growth (“G”), Inflation (“I”), and interest Rates (“R”) the policy rates set by the Central Bank. Every economic data release is relevant in as much as what it means for the direction of these three key macro drivers. Monitoring these macro factors The chart shows the recent evolution of these three macro factors for the UK. What about other macro factors? Other key macro factors that impact markets include Sovereign Risk (e.g. higher risk premia for Emerging Markets), Credit Risk (higher risk premia for lower quality debt) and Liquidity Risk (higher rewarded return for less liquid investments). Macro factors affect all asset classes Macro factors impact equities and bonds alike. Macro factors impact the risk premia (and hence return expectations) on different asset classes. As these premia shift, so do expected returns. For example, corporate bonds are impacted by interest rates premium, inflation risk premium and credit premium. Small cap equities are impacted by interest rate premium, inflation risk premium, growth premium and liquidity premium. Macro factors are inter-related Macro factors are inter-related. In the text books, when economic growth is strong inflation pressure builds. Interest rates are raised to contain inflation. When interest rates fall, that can stimulate growth. In reality, it can be more complicated (and has been). The relationship between macro factors is key, as a read of the Bank of England’s Monetary Policy Committee minutes will show. Why we believe in an adaptive approach A static-allocation “cruise-control” portfolio had worked well until the bond market dislocation of 2022 driven by the inflation and rate-hike shock. But as markets don’t stand still, nor should portfolios, in our view. We believe in an adaptive approach adaptive approach to navigate market risks, rather than leaving portfolios in cruise-control. This categorically does not mean trying to time the markets. What it does mean is trying to steer away from potential hazards along the way. Conclusion Keeping an eye on the key macro drivers is therefore key to asset allocation decision-making.  Subscribe to our weekly newsletter to get all our insights to your inbox (for UK financial advisers only)
[5 min read, open as pdf]
With rate cuts less likely, and zombie-inflation proving sticky, there are dual pressures on long-dated gilts. Whilst for some it might be satisfying to blame higher UK bond yields on Rachel Reeves, comparisons to the "Truss moment" are not entirely fair. There is a difference in my view. Here's why: Truss yield spike: fear that UK books not balancing, disregarding OBR, not showing workings - only UK yields affected. Idiosyncratic UK bond market risk. Conclusion? Politicians ignoring how markets work. Reeves yield spike: fear that US and UK books not balancing PLUS US/UK debt issuance indigestion. US & UK yields simultaneously affected. Idiosyncratic UK AND Systematic US/UK bond market risk. Conclusion? Markets ignoring what polticians say. The Reeves era of yield pressure is different from the Truss/ moment of her 2022 budget. But that doesn't help. A review of bond duration and how to mitigate the risk of zombie inflation is required to cope with bond indigestion. |
ELSTON RESEARCHinsights inform solutions Categories
All
Archives
February 2026
|
RSS Feed
|
Company
|
Our Solutions
|
|