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Monthly market update: September 2017

The impact of policy and politics on financial markets refused to show any sign of abating in September, with pressures building from all corners of the globe.

Central Banks moved a step closer to normalising monetary policy in September, and the Bank of England gave its biggest hint yet that interest rates could rise before the end of the year.

Previously, any expectations of a UK rate hike were set firmly for 2018.  However, an acceleration in inflation has bucked the global trend and the UK economy is growing – albeit slower than expected.

The UK’s economic back-drop is far from ideal, however, with consumers feeling the squeeze of stagnant wage growth against rising prices.

A hike in rates brings risks to the consumer, sterling and the financial markets, however the Bank of England has assured the UK that any return to normal monetary policy will be gradual.

After over 100 months of low interest rates, a hike from the Bank of England will signal confidence in the economy, which will likely support the pound going forwardv.

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Moneyfarm portfolio performance

Due to the global exposure of our portfolios, sterling’s rally weighed slightly on short-term portfolio performance in September.

We expect the pound to strengthen further as Central Banks gear up to normalise monetary policy, so have increased the exposure to sterling in our portfolios.

The combination of decent global economic growth and the desire to normalise monetary policy suggests that bond yields will rise over time.

This may trigger a rotation out of yield-proxy equities, so we adjusted our asset allocation in September to reflect an expected shift to bonds over the coming months.

It can be difficult to avoid knee-jerk reactions to short-term fluctuations in a portfolio’s performance, but we believe diversification across geographies and asset classes can help you achieve those long-term financial goals of yours – whether it’s that dream family holiday, upsizing your home, or retiring early.

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