Good morning,


The UK took centre stage on investment markets last week, as the fallout from the ‘mini-budget’ of the new conservative budget continued unabated (more info below). Before, we discuss the details any further – it has been announced this morning that the abolition of the 45% tax rate for high earners will not go ahead. Whilst the Prime Minister and Chancellor didn’t bow to economic pressure from the markets last week, they appear to have folded under political pressure on the sidelines of the Conservative party conference. 


The economic pressures last week included a rebuke from the usually stoic IMF and an intervention into the gilt market by the Bank of England. The esoteric world of Defined Benefit liability driven investment (LDI) caused much of the worry. Certain DB schemes found themselves in a vicious circle of selling down assets to fund derivative margin calls, which in turn resulted in prices spiralling downwards once more.  Sterling, the full UK gilt curve, and the wider UK stock market all suffered within volatile trading.


The fallout will continue to be analysed ad infinitum, with a plethora of technical papers to follow. However, once this appears clear – the ‘fiscal flexibility’ and ensuing political hubris of a negative interest rate environment doesn’t look like it’ll wash anymore.


As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.