MARKET UPDATE – End of October 2017

All eyes will be on the Bank of England tomorrow (Thursday 2 November) as it is reported that there is an odds-on chance that the Monetary Policy Committee will increase interest rates by 0.25%.  While this increase will be the first in a decade, it is simply a reversing of the most recent cut made in August last year.


Also, on Thursday, the Bank of England will publish its Inflation Report which will provide updated forecasts for the economy, inflation, employment and so on.  This will be an interesting insight on what the Bank believes is happening to the economy ahead of the first Autumn Budget, which will take place in three weeks time on 22 November.


During October, the FTSE 100 recorded its highest ever closing level on 12 October at 7,556.24.  It ended the month at 7,493.08, which was still 1.6% higher than the September closing figure of 7,372.76.


In the US, the Dow Jones Industrial Average continued its upward momentum, closing at 23,377.24, a gain of 4.3% above October’s opening level of 22,423.47.  This marked the seventh straight monthly gain, leaving March as its only losing month so far in 2017.


In terms of £ Sterling, it ended the month at 1.33 US Dollars, which was 0.7% lower than the beginning of October.  Against the Euro, £ Sterling strengthened slightly during October, being 0.8% higher at 1.14 Euros.


Inflation, as measured by the Consumer Prices Index (CPI), increased again to 2.8% (this is based on September’s data which is reported in October).  This was up from 2.7% with rising prices for food and recreational goods, along with transport costs, which fell by less than they did a year ago.


The 12-month rate actually increased to 3.0% (September’s data), which was its highest level for 5 years.  This figure is significant because state pension payments from April 2018 will rise in line with September’s CPI.  Under the “triple lock” guarantee, the basic state pension rises by a rate equal to September’s CPI rate, earnings growth or 2.5%, whichever is the greatest.  At the moment, the full new state pension is £159.55 per week, equivalent to £8,296.60 per year.


Furthermore, this steadily rising inflation rate continues to mean that inflation remains an issue for long-suffering bank and building society savers who are losing money in real terms when you consider the rate of savings interest compared to the rate of inflation.  This appears to be having an impact as the amount they saved into Cash ISAs in tax year 2016/17 was £19.5 billion lower than the previous tax year.


With external influences remaining uncertain, it is reasonable to assume that we may well be entering a volatile period for investors and as usual it remains increasingly important to invest in a well diversified investment proposition.