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At the moment, markets feel calm but thoughtful.
In the UK, inflation is hovering around 3%, but it’s likely to fall back toward the Bank of England’s 2% target over the coming months. That’s not because prices are falling (they aren’t), but because last year’s big price increases are dropping out of the annual comparison. The cost of living is still high - it’s just rising more slowly.
We expect interest rates to come down a little more than markets currently expect, particularly if growth continues to disappoint and unemployment edges higher. However, we remain cautious about longer-term government bonds. High public debt and political uncertainty mean longer-term interest rates may not fall as neatly as short-term rates. For now, keeping bond exposure shorter in duration feels sensible.
In the US, things are entering a transition phase. A new Federal Reserve chair is expected, and while rate cuts are likely, policy is becoming more complicated. It’s no longer just about what central banks say. Fiscal decisions, Treasury funding plans and even housing agencies are increasingly influencing markets.
Geopolitically, the world remains unsettled but not unstable. The most significant long-term risk continues to centre on China and Taiwan. Encouragingly, Japan has taken a firmer stance in the region, which may act as a deterrent rather than an escalation. Elsewhere, markets seem to be in “wait and see” mode.
Overall, valuations in parts of the US remain elevated, while other regions look more reasonably priced. That reinforces the importance of staying globally diversified.
What we reviewed and agreed
At our most recent meeting, we spent more time on the macro backdrop than on short-term performance.
Inflation and interest rates
We discussed the likelihood of UK inflation falling toward target and what that means for interest rates. While cuts are likely, we agreed not to extend bond duration aggressively. We expect to benefit from lower short-term rates without taking unnecessary long-term risk.
Tariffs
We reviewed the US tariff ruling and the evolving policy environment. Our conclusion: messy, but not materially market-changing. The bigger picture remains one of gradual easing rather than abrupt shifts.
No change to overall positioning
Asset allocation drift has been modest. Equity exposure has edged up slightly as markets have risen, but not to a level that requires intervention. We agreed that holding steady remains appropriate.
High-yield bonds
We revisited our approach to high-yield credit. Spreads remain tight, so this isn’t an area we are rushing to increase. However, we continue to review whether a more active approach could add value in future.
What this means for you
Your portfolio remains diversified and deliberately positioned.
We expect interest rates to drift lower, but we’re not making dramatic bets on that outcome.
We recognise geopolitical risks (particularly in Asia) but see no immediate escalation.
We remain invested, but flexible.
As ever, our job is not to predict the next headline, but to ensure your portfolio is robust across a range of outcomes. If volatility does return, we will be prepared to respond thoughtfully rather than react emotionally.
Next Investment Committee Meeting
The next ICM is scheduled for 20 March.