Investment Newsletter - November 2012

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Investment Newsletter November 2012

Gilt-y Conscience? Quantitative Easing in the UK has now reached £375bn. This means that the Bank of England has bought £375bn of UK Government bonds.

This amounts to around 31% of all the gilts in issue. To put it another way, the state (Treasury) owes a third of its debt to another state owned institution (the Bank of England). If this didn’t already seem like a smoke and mirrors way of injecting money into the economy, then consider the interest payments. To date, the Bank of England has received around £35bn in interest payments on the gilts that they own. This has basically been sitting in an account at the Bank, going unused. This money is now to be given back to the Treasury. To put it in context, £35bn is enough to pay for the entire UK defence budget for a year. £11bn of this money will be used to reduce this year’s deficit, with the remainder used over the next two years to keep the deficit down. The UK Government is already paying record low yields on its borrowing, just 1.75% over 10 years and only 0.72% over five years. Now, it turns out that a third of that debt is actually “interest free”! Not only that, but many people think the gilts will never be sold again but will just be allowed to “mature”. Some commentators have called for an end to this smoke and mirrors, and for the Government to come clean by just cancelling this debt. However, for now the status quo has been accepted by markets. Whilst things continue as they are, our vast debt remains more than sustainable. Some even believe we should borrow more and invest in infrastructure and other GDP boosting projects. Certainly, debt appears to be an issue for the future, whilst economic growth is a big issue for now. Central bankers and politicians are increasingly looking for more “unconventional” approaches to economics, and this trend is likely to continue for some time. Equilibrium Asset Management LLP (a limited liability partnership) is authorised and regulated by the Financial Services Authority. Equilibrium Asset Management is entered on the FSA register under reference 452261. The FSA regulates advice which we provide on investment and insurance business; however it does not regulate advice which we provide purely in respect of taxation matters. Copyright Equilibrium Asset Management LLP. Not to be reproduced without permission


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Investment Newsletter - November 2012 by Equilibrium Financial Planning LLP - Issuu