The time has finally come!

It is with more than a little sadness that I am writing to confirm that my faithful and long-term PA, Denise, has decided to retire; her last working day will be Thursday 15th March.

Denise came to work with me whilst I was still running my small business from home, approximately 23 years ago, since when she has provided me with unwavering support through the good times and the bad and I think it no exaggeration to say that, the business would not be what it is today without her calm demeanour, her gentle sense of humour and her genuine affection for all our clients.  

From a personal perspective, over the years I have come to know Denise’s wonderful family very well and I hope that we will all remain lifelong friends. I am sure you will want to join me in wishing her a long and very happy retirement.

Denise leaves large shoes to fill but you will be pleased to know that she is currently working with her successor, Kim Lewis, to ensure that the transfer of duties and responsibilities will be as seamless as possible. Some of you may have already spoken to Kim, she is a very friendly and capable lady and we are very excited that she has decided to become part of the Clearwater team.

Kim has worked with an IFA previously and so she is already familiar with the workings of a firm such as ours and the services that we provide to our clients.

You will doubtless be speaking with Kim at some point over the course of the next few months and I know she is looking forward to getting to know you all.

If you have any concerns or questions about any finance related matter, please do not hesitate to call me at any time.

With best wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

It’s that time of the year again!

As we approach the end of the 2018/19 tax-year, thoughts inevitably turn to end of year tax planning and any unused allowances (ISA, Pensions etc.) that may be available.

The ISA allowance for 2018/19 is £20,000 and if you have not made a subscription (or perhaps you have only made a part subscription), there is still time to use this allowance, if you have the funds available.

Since 6th April 2016, in addition to the subscription, it has been possible to top-up ISAs by any amounts withdrawn during the tax-year, including any charges deducted. This means that even if you have not made a subscription this year but have ISAs from previous years, your personal ISA Allowance may be more than £20,000 because of charges deducted during the year. If you made a subscription at the beginning of the tax-year, you may still have a residual allowance left because of these deductions which can be utilised by 5th April 2019.

If you have a Standard Life Wrap Account, the scope for top-up (in addition to any unused subscription) does not apply, unless you take physical withdrawals from your ISA. This is because Standard Life deduct ISA charges from the cash held in your Portfolio and not from the ISA itself.

If you have a Transact Wrap Account and you would like to know your personal ISA allowance for the remainder of the 2017/18 tax year, you can access this information on the Transact website. From your home page, select reports and from the drop-down menu, select ISA Subscriptions.

If you would like to use the balance of your allowance before 5th April, please ensure you advise us of your intentions before the end of March; we will be very pleased to assist. If your ISA is with Transact, please give us as much notice as possible, as a form may be required, if you have not made a subscription since Tax year 2017/18.

Just for information, the ISA Allowance for 2019/20 will remain £20,000 each, so £40,000 per couple.      

If you have any concerns or questions about the above or indeed any other finance related matter, please do not hesitate to call me at any time.

With best wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Performance Update – 5th February 2019

I saw the following article in the Sunday Times at the weekend and thought it would provide the context for a Performance Update on a selection of the EBI Portfolios, which most of our clients use.

I have underlined a few of the numbers from the article, as I wish to comment on these at the end.

The article is by Holly Black under the heading ‘Worst Year for Pensions since 2008’.

Savers saw the value of their retirement pots drop last year as pension funds suffered their biggest loss in a decade.

The average fund’s value fell by 6.2%, due to markets tumbling in the final three months of the year. Fewer than 1 in 10 funds rose over the year as technology stocks fell out of favour with investors and Brexit worries increased.

Figures from the data firm Moneyfacts show pension funds in the UK smaller companies sector suffered the greatest loss, down 13.9% over the year, while those in European equities, including the UK, fell 13.6%. UK direct property was the only sector to finish in positive territory, up 4.4%.

The poor performance will be a particular blow to retired people who have moved their savings into drawdown since the pension freedoms were introduced. They withdraw an income in the expectation that investment returns will replenish their pot. This is much harder to achieve when stock markets fall.

Jason Hollands of the financial adviser Tilney Bestinvest said: “The stock market turbulence in 2018 serves as a stark reminder that income drawdown is not for those of a nervous disposition.

“These retirees need to be sure they are not taking out too much, otherwise they run the risk of draining their pensions of assets too rapidly. No one wants to run out of money partway through retirement.”

Last year was the first time since 2011 that the average pension fund shrank in value. In 2017, the average return was 10.5% and in 2016 it was 15.7%.

However, while the average fund fell 6.2%, losses were far greater at the height of the financial crisis. In 2008, the value of the average pension fund plunged 19.7%.

The negative returns of recent months are a worry for people due to retire in the near future, who may now have less money saved than they had planned for.

Hollands said: “Anyone who anticipates retiring soon is likely to find the pot they may have intended to use to purchase an annuity won’t go as far as they may have expected just 12 months ago. They may require a rethink of their plans.”

The article provides a useful reminder that the level of investment returns required for a successful retirement strategy are seldom delivered in a nice steady, easy to predict way. In the article we can see that the average fund’s value fell by 6.2% last year but returns in 2016 and 2017 were positive 15.7% and 10.5% respectively. In 2008 however, the average fund fell by 19.7%.

Just for comparison purposes, the following chart shows how a range of the EBI Portfolios fared between 1st Jan 2018 and 31st December 2018. Unsurprisingly, the worst performer was EBI 100 which registered a drop of 8.34% (ouch, that’s where my money is invested) but EBI 60, the most popular portfolio fell by just 4.92%.  

The ups and downs above represent anything but a smooth ride and yet the average annualised return from EBI Portfolio 60, over the past 10 years, to the close of business on 4th Feb 2019, is 8.79%*. After allowing for inflation and charges, that looks like an annualised real return of something around 5.0% per year.

The point is, we have to take ‘the rough with the smooth’, accepting that there will be occasional spectacular years which are offset by occasional catastrophic years.    

In closing, I thought I would cheer everyone up by showing how the same portfolios have performed since the beginning of 2019. It’s disappointing that we don’t hear this kind of positive reporting on the news.

Heartening though the above is, it is entirely possible that markets could fall again before they eventually test new highs, whenever that may be.

As always, if you have any questions about the contents of this e-mail or any aspect of your financial planning, please do not hesitate to get in touch.

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

* Source: FE Analytics 5th Feb 2019.

Where are we now, following last night’s votes in Westminster?

I do appreciate some of you (and me) are becoming an odd combination of bored/nauseous with Brexit. However, with uncertainty remaining the ever- present fear in most clients minds I hope this might arm you with a few up to date comments to assuage any knee jerk reactions.

What happened?

Parliament couldn’t decide. Here we go again. The Prime Minister backed an amendment that rejected a deal she had negotiated and instructed her to go back and try a bit harder. Meanwhile, Labour tried (and failed) to get a delay without really knowing what that would achieve.

How did this happen? When the legally binding amendment (the Cooper amendment) to extend Article 50 failed, a non-binding version, the Spelman amendment, was passed. So, Parliament has said it doesn’t want No Deal but has refused to take it off the table. Then through the Brady amendment, backed by the government, it decided it doesn’t like the indefinite “Irish backstop” and would like to find “alternative arrangements”. What would those be? Nobody knows, other than some yet-to-be-identified technological solutions.

What next?

On the surface, the possibility of a No Deal Brexit has risen. Even if it’s an outcome that Parliament has rejected, as we get closer to 29 March no deal becomes less unlikely, if only by mistake. To make matters worse, the Prime Minister has promised something she claimed was impossible a few weeks ago – renegotiation of the Withdrawal Agreement. Meanwhile, the EU instantly rejected reopening negotiations.

In reality, the spread of outcomes remains as wide as ever. For starters, Parliament feels it should have been able to give a steer to the government long ago. It is finally learning how to flex its muscles on Brexit. Better late than never. Also, this was an opportunity to patch up a brewing civil war within the Conservative Party while allowing Labour more space to not make a decision. Think temporary “win-win”. But as we get closer to the March deadline, there will be less space for this kind of indecision.

The Prime Minister has promised another Commons vote in mid-February, possibly on the 14th. What exactly might she bring back to the table? Behind the EU’s bluster, it’s an expert at kicking cans down roads. If the UK thinks the way around an indefinite backstop is some technological solution at some point in the future, maybe the EU might be open to agreeing on what kind of parameters it would expect these solutions to meet. Such parameters “could involve test runs, agreed levels of border security (such as maximum levels of smuggling) and milestones for building the necessary infrastructure for behind-the-border controls.” It’s a long shot but we shouldn’t reject the idea of an updated Withdrawal Agreement.

Time will tell but it looks as though this thing is going to go right to the wire!

As always, if you have any questions about the contents of this e-mail or any aspect of your financial planning, please do not hesitate to get in touch.

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

How to avoid the urge to sell everything when the going gets tough!

Firstly, a very Happy New Year! I hope you enjoyed the Festive Period in the company of loved ones and great friends.

 The following is an article I read this morning by Craig L. Israelsen, Ph.D., a Financial Planning contributing writer in Springville, Utah, he is an executive in residence in the personal financial planning program at the Woodbury School of Business at Utah Valley University.

The article is aimed at US Financial Planners but during this uncertain period, I thought you might find the central message reassuring and interesting. I have highlighted the most interesting statistics, just in case you don’t have time to read the entire piece.

“Ask your client this question: "What was the last movie you watched?"

They probably didn’t have to think too hard to remember. Then try this one: "How about a movie you watched in 1985?"

No dice — right?

Clients recall the performance of their investments similarly; that is, they remember recent performance with greater clarity. This trait, called recency bias, leads them to extrapolate into the future the good or bad they are experiencing in the moment. That skews their expectations — for better or worse — and distorts their view.

But there’s one notable exception to recency bias: the period in which your client’s portfolio suffered a significant loss. Referred to as loss aversion, this sentiment is also quite real. Investors simply don’t like big losses. Case in point: Have your clients forgotten about 2008?

So a recent loss in portfolio value can trigger both recency bias and loss aversion, and that can lead to “sell everything” phone calls. In the worst case, this type of fear cycle can wreak havoc if long-term plans are abandoned abruptly.

A recent loss in portfolio value can trigger "sell everything” phone calls.

In the chart called “Big Picture” we see a summary of the annual returns of seven core asset classes (indexes) over the past 49 years — as well as two portfolios. The first portfolio included all seven indexes in equal allocations; the second was a 60/40 portfolio consisting of 60% U.S. large stock and 40% U.S. bonds. Both portfolios were rebalanced annually over the 49-year period of analysis from 1970 to 2018. The calendar year losses of each individual index and both portfolios are shaded in pink. It’s these pink boxes that test the resolve of investors. But, as can be seen, the losses are relatively infrequent.

For example, over the 49 years from 1970-2018, large cap U.S. stock has produced positive nominal calendar year returns 80% of the time and generated an average annualized return of 10.21%. If we consider the impact of inflation, large cap U.S. stock had positive real returns 71% of the time and an after-inflation (or real) average annualized return of 6.00%.

By comparison, U.S. cash (as measured by the 90-day Treasury bill) had a 49-year average annualized return of 4.80% and positive nominal annual returns 100% of the time. But, after factoring out the impact of inflation (as measured by the CPI) the average real return was 0.80% and real annual returns that were positive only 57% of the time.

More importantly, let’s consider the performance of the two portfolios. First, the seven-asset portfolio had positive nominal returns 86% of the time and a 49-year average annualized return of 9.48%. After inflation is factored out, the average annualized real return has been 5.30% with positive real returns 73% of the time. The 60/40 portfolio had positive nominal calendar year returns 80% of the time and a 49-year return that was 5 bps lower at 9.43%. After inflation, the 60/40 portfolio had positive returns 71% of the time and a real return of 5.25%. This information puts performance over nearly five decades into perspective.

The 49-year historical performance of large-cap U.S. equities was represented by the S&P 500 Index, while the performance of small-cap U.S. equities was captured by using the Ibbotson Small Companies Index from 1970-1978 and the Russell 2000 Index from 1979-2018. The performance of non-U.S. equities was represented by the Morgan Stanley Capital International EAFE Index (Europe, Australasia, Far East) Index. U.S. bonds were represented by the Ibbotson Intermediate Term Bond Index from 1970-75 and the Barclays Capital Aggregate Bond Index from 1976-2018. As of late 2008, Lehman Brothers indexes were renamed Barclays Capital indexes.

The historical performance of cash was represented by three-month Treasury bills. The performance of real estate was measured by using the annual returns of the NAREIT Index from 1972-1977 (annual returns for 1970 and 1971 were based on research in the book “Real Estate Investment Trusts: Structure, Performance, and Investment Opportunities,” Table 2.2). From 1978-2018 the annual returns of the Dow Jones U.S. Select REIT Index were used (prior to April 2009 it was the Dow Jones Wilshire REIT Index). Finally, the historical performance of commodities was measured by the Goldman Sachs Commodities Index. As of Feb. 6, 2007, the GSCI became known as the S&P GSCI.

There is a key observation that should not be obscured by so much data: Each index (i.e., asset class) that we are evaluating had positive calendar year returns more than 68% of the time (based on nominal returns) and at least 57% of the time if using “real” inflation-adjusted returns. More importantly, the two portfolios we are evaluating had positive calendar year real returns at least 71% of the time.

Having a clear understanding of long-term asset class performance (as demonstrated in “Big Picture”) can minimize the potentially negative impact of recency bias during and after periods of market volatility — particularly when the volatility results in portfolio losses. The reality is that a broadly diversified portfolio will generate positive nominal returns nearly 90% of the time over time measured in decades, not months. Of course, a person who only invests in a diversified portfolio for two years should not expect positive returns in 90% of the 24 months. Even a diversified portfolio can experience two consecutive negative calendar year returns, such as in 2001 and 2002.

In summary, the impressive performances of the asset classes and portfolios in this study are over a 49-year period. Said differently, long-term results take a long time to replicate. The key to achieving long-term results is to stay in the saddle for a long time. The challenge is our natural instinct to avoid losses (loss aversion) and our tendency to over-emphasize what we have experienced most recently (recency bias). (For more discussion about portfolio losses see “You Can’t Win if You’re Afraid to Lose” in the October 2018 issue of Financial Planning).

The solution to countering recency bias is accurate information and proper perspective. This article has provided you with nearly five decades of information. With that information, work to help clients develop a proper perspective about the impressive performance demonstrated by a diversified investment portfolio over the past 49 years.”

Although this study concentrates on US data, results for diversified portfolios with UK equity bias, are similar.

As always, if you have any questions about the contents of this e-mail or any aspect of your financial planning, please do not hesitate to get in touch.

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

It’s not as bad as you might think!

In the wind down to Christmas I just wanted to share a blog with you that a friend of mine, David Crozier, a Financial Adviser in Ireland, posted on his website this week. Life in general is not as bad, it appears, as the media would have us believe.

“This last blog of 2018 was prompted by a book recommendation and a presentation. Both were affirmations of some core principles, much-needed in the difficult times in which we are living.

For somebody who is personally interested in politics, as well as being professionally rather more than interested in money, the ongoing drama around the Brexit negotiations has been at once fascinating and a bit frightening. The ancient Chinese are reputed to have a curse that said, “May you live in interesting times,” and I have understood the force of that in these days and weeks.

I wonder if the Prime Minister feels as if she’s experiencing a very personalised version of it: “Teresa May, you live in very interesting times”.

It is easy to get sucked into the doom and gloom of it all, but in fact, taking the long view, people alive today, to paraphrase another PM≠, have never had it so good.

The book, Factfulness, by Hans Rosling±, explains that on just about every measure, the world is a much better place than it was even 20 or 30 years ago. The strides that have been made are simply astonishing, but the other amazing thing is that very few people grasp it. This includes some of the official bodies that are supposed to care about these things, and that count among their number some of the most intelligent and powerful people in the world.

Just to take a couple of examples out of the 19 presented in the book: poverty (almost halved over the last 20 years), education (90% of girls of primary school age worldwide are in school), access to protected water sources (88% – up from 50% in 1980) and life expectancy (72 years, for the world on average) – these are all much, much better; yet because of our natural tendency to notice bad things more than good, and selective reporting by activists and the media, we think things are worse than they really are.

Read the book, and be uplifted.

The presentation was by my good friend, David Jones, of Dimensional Fund Advisors, who has come up with a brilliant way of demonstrating that market downturns are, of necessity, temporary in nature.

Consider this graph†.

You will notice that the number of patents applied for and granted rose steadily throughout the period, regardless of what was happening in markets. David makes a couple of points:

1. The creative spirit is not affected by markets. People continue to have bright ideas; they don’t say, the market is down, I had better stop thinking;

2. Once granted, these ideas need to be turned into reality. They need to be designed, manufactured, marketed, delivered – all of this, every single link in the chain, needs capital;

3. Where does capital come from? The capital markets, which require a return from the capital invested; and thus, markets trend ever upwards.

Because of all this, although there is no denying that markets will go up and down all the time – sometimes in a quite terrifying manner – there is a force that drives them inexorably upwards over the long term.

You just need to hang around for the ride.

Although it is not the direct point I wish to make, you will also notice that £100 became almost £4,500 in the course of a little under 30 years. Time in the market really does work, if we have faith in the future and a disciplined and diversified approach to investing, backed up by a proper financial plan to make sure that we have enough money to pay for the things that are really important to us.

This a good time of the year to reflect that the hinge of history is on the door of a Bethlehem stable*, and perhaps if we all took better account of all that is bound up in that message of hope, we would worry less about the history being made before our very eyes.”

I found David’s blog refreshingly uplifting, especially at a time when the outlook appears somewhat bleak – things might not turn out to be as bad as they seem.  

With very best Christmas wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

≠Harold McMillan, July 1957
± ROSLING,H, Factfulness, 2018
†Sources: Financial Express Analytics, MSCI World, total return, increase in value of £100 from January 1978 to December 2015; US Patent & Trademark office
*Ralph W Sockman

Festive Greetings!!!

Adam, Denise and I would like to take this opportunity to thank you for your continued support and of course to wish you and your family a very Merry Christmas and a Happy New Year!

As with a number of previous years, in lieu of sending individual Christmas cards, we have once again decided to make a donation to a worthy cause.

Sadly, in October of this year, I learned of the passing of one of my lovely clients who I have known for over 25 years. I know that in her last weeks, she and her family were greatly assisted by The Adelaide Ward at the Royal Berkshire Hospital and accordingly, I will be making a donation to help them provide similar care to other families.

Adelaide Ward is a mixed ward that treats mainly acute haematology and oncology patients at the end of their lives, providing great comfort to patients and their families.

I hope you will approve of my decision to support this very worthwhile organisation.

I do hope 2019 brings you all you would wish for.

With very best Christmas wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

A Quick Update

This is not a text heavy diatribe, just a few charts to give you a sense of how the Clearwater Portfolios have been faring during this period of unprecedented uncertainty. I have shown a range of Portfolios over 6 Months, 1 Year, 5 years and 20 Years.

6 Months to 10th December 2018

1 Year to 10th December 2018

5 Years to 10th December 2018

20 Years to 10th December 2018

The final chart shows our 2 most popular Portfolios, EBIP 40 and EBIP 60 plotted against the FTSE 100 Index over the past 12 months; I have included this to provide a sense of comparative volatility. I think this chart underlines the benefits of global diversification, in terms of reducing volatility.

1 Year to 10th December 2018 – FTSE 100 vs EBIP 40 & EBIP 60

What I hope you will take from this e-mail is a sense that, although we are sailing on choppy seas at present, when set against the longer-term backdrop this type of volatility is quite normal. It’s always something different that causes the volatility but this is quite healthy with efficient markets and we have seen it all before.

It is entirely possible that markets will fall further before they stabilise but this might present buying opportunities for investors holding cash. I don’t believe in market timing of course but if markets are cheaper than they were previously, now must be a better time to buy.

As always, if you have any questions on this subject or indeed on any other finance related matter, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

UK stocks could surge when Brexit is settled

I spotted this very short piece in the FT yesterday and was drawn to its upbeat message, which is in stark contrast to most of my recent reading material.

“The bounce seen in global equity markets since the end of last week as a result of an improving political environment could be replicated in the UK if the Brexit process comes to a stable conclusion.

This is according to Russ Mould, UK investment director at AJ Bell.

His comments came as Asian and emerging market equities opened strongly this morning (December 3) following progress in the trade dispute between the US and China, with our sister title the Financial Times reporting that US president Donald Trump is to offer a "truce" in the dispute.

Mr Mould said the swiftness of the response by investors to the change in the political rhetoric indicated that if a similar change in the political weather were to happen in the UK, then the UK equity market would also increase sharply.

He said the UK market has underperformed all other developed equity markets in 2018, an outcome that has left it on a valuation multiple of just over 11 times earnings, which is considerably less than the long-term average for the market of 18.

The yield on the UK market of 4.8 per cent is also greater than that offered by other markets, and Mr Mould said this makes those markets "cheap."   

Aninda Mitra, senior analyst at BNY Mellon, said the market is “elated” by the developments in the trade dispute but he added that the reprieve could prove temporary.

Markets have also been boosted by comments from Jerome Powell, chairman of the US Federal Reserve, who stated last week that US interest rates may be approaching the peak level for now, and so not need to rise by as much as the market had previously expected.

Ed Smith, head of asset allocation research at Rathbones, said the move by Mr Powell has boosted markets, but that a change in relations between the US and China would provide an even bigger boost.

Jonathan Davis, Chartered financial planner of Jonathan Davis Wealth Management in Hertford, said there have always been issues in markets but investors should remember that this has not stopped equities rising consistently over the past century.”

david.thorpe@ft.com

As always, if you have any questions on this subject or indeed on any other finance related matter, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Brexit – What Happens Next?

I thought you might find this helpful article from Karen Ward at J P Morgan interesting; it very much echoes my own thinking.  

“There has been significant progress in the Brexit negotiations in the last 48 hours. A withdrawal deal has been agreed between the UK and European Union (EU). The prime minister (PM), Theresa May, has presented this to her cabinet. Whilst the PM appeared to have the backing of her cabinet last night, Dominic Raab, the Secretary of State for Exiting the EU has just resigned which will create concerns about a leadership challenge and the deal when it reaches Parliament.

We continue to believe that no UK politician can secure a better deal simply because there is no other solution to the Irish Border. Despite posturing, we expect the PM to conclude the negotiation and the deal to pass through Parliament by the end of the year.

What is "the deal"?

The deal constitutes three parts: the divorce bill, a period of transition to December 2020 (or possibly beyond) in which nothing changes so firms have time to adapt, and the broadest heads of terms on the future long-term economic relationship between the UK and the EU.

The sticking point throughout has been how to manage the UK’s ambition of having no border on the island of Ireland nor a border in the Irish Sea, but at the same time separating itself from the European single market and customs union to enable it to set its own rules and trade agreements.

The simple fact is that there is no solution to the Irish border question, except that Great Britain and Northern Ireland stay in the customs agreement for goods. That is the stated ambition for the final relationship. Given the priority in the UK parliament of maintaining the union between Great Britain and Northern Ireland and to respect the Irish peace process, we have always expected the deal to land in this way.

The ambition – and compromise to certain members of the Conservative Party – will be that the UK pursues a technological solution that, at some point in the future, allows for an invisible Irish border and opens up some options for the UK in establishing other trade relationships. There is also enough in the wording to suggest that UK financial services will be able to continue trading in the EU in much the same way today under an equivalence framework. Importantly, these rights cannot be removed in an abrupt or arbitrary manner.

There is a ‘backstop solution’ which would come in to force at the end of the transition period in December 2020 if a broad trade deal encompassing the customs union cannot be achieved. This does see some special arrangements for Northern Ireland. The prime minister will need to reassure the Democratic Unionist Party (DUP) that this is such an extremely remote possibility in order to have their backing.

What’s next?

We believe the PM will win any leadership contest.

There is then likely to be another round of meetings in Brussels to sign off on 25 November and then the bill needs to be put to the UK parliament. This is the bit investors have been most nervous about.

The specifics are that the government will lay a statement in the Houses of Parliament saying that a deal has been reached and then will submit a motion to the House of Commons and schedule a time for a debate and vote. This could be as little as five days after laying the statement.

It may not be voted through first time. It may take a number of amendments to appease backbenchers (such as specifics on the ambition for a technological Irish border solution and how that could alter the deal in the future). So there may still be back and forth as footnotes and finer details are added to appease all sides. This process may still generate considerable market volatility. But it is important to remember that even if members of the Conservative Party do not ‘like’ the deal, voting against the prime minister raises the risk of political deadlock that can only be resolved through either another Brexit referendum (with the options this deal or stay in EU), or a general election. That would be a significant risk for backbenchers to take. We think the bill will pass and most likely in the first week of December.

All 27 remaining EU member states also need to pass legislation (hence the need to get the deal wrapped up well ahead of 29 March) but we see limited reason for concern about that ratification process.

The UK formally leaves the EU on 29 March but during the period of transition (running up to December 2020 or beyond) nothing changes. The transition period was designed to allow businesses time to adapt to the new relationship. Negotiators will continue to work during the period of transition on the full aspects of the final partnership with the ambition of having all the details filled in six months ahead of the transition period ending.

What impact will it have on markets?

Whilst political headlines are likely to generate a lot of volatility in the coming days on passage of the bill, sterling is likely to rally. This may adversely affect the FTSE 100 given the high proportion of FTSE earnings that are repatriated. Going in to next year we expect business investment to experience a relief rally and higher sterling to depress inflation and lift real wages so consumer spending would also accelerate. Given the Bank of England (BoE) believes that the economy is already at capacity, we think it will raise interest rates at a faster pace than the market currently expects (we see at least two 25 basis point increases next year). When the BoE confirms this more hawkish playbook, we expect sterling to rally further.”

As always, if you have any questions on this subject or indeed on any other finance related matter, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner