Belfast Telegraph

In or out? The EU membership question must be resolved

By Jeremy Stewart

Following on from the election earlier this month, the market is now focused on the prospects for a UK referendum. Who on earth came up with the clumsy word 'Brexit' to refer to a UK exit from the EU? And 'Grexit'? Let's hope neither term ever makes it into the dictionary.

With the political constraints of the election removed, Mark Carney, the Bank of England Governor, weighed into the debate, saying that it was in everyone's interests to address the uncertainty over the UK's EU membership.

The outcome could have a significant impact on the value of sterling and company shares, in particular those of firms that export to Europe.

Mr Carney indicated that weak productivity growth is contributing to the downward revision in forecasts for UK growth, and he cited an underlying weakness in UK per capita output in addition to the growth in employment in lower productivity sectors within the economy.

The anticipated reduction in the rate of inflation is likely to be 'short-lived', with a return to 2% inflation likely within two years.

The Bank of England news saw the FTSE 100 move up and sterling strengthen before easing back somewhat.

What investors want to know is, what does this mean for interest rates?

It is good news for borrowers but disappointing for savers.

On the balance of probabilities, the first rate rise is unlikely to be before November this year.

Indeed, if emerging economic data points to a softening of the inflation outlook, this could even push a rise into 2016.

With interest rates so low, some investors are increasing their exposure to risk assets because they feel there is nowhere else to go. It is important to invest in an asset because of its intrinsic value, not because cash rates are poor.

And, although we do expect volatility to increase, there is still value available for those investors prepared to take a longer term approach.

Belfast Telegraph

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