With reflection, the most significant Budget announcement was the Chancellors decision to review the MPC's formal remit. While the inflationary target will remain unchanged, investors should be in no doubt the reality is the Central Bank is moving towards a mandate that is designed to be yet more stimulatory. This is, in the long term, more significant than the news that the deficit remains highly embedded, or micro tinkering in the housing market, or infrastructure spend. While we question the long term wisdom of this policy it is undoubtedly positive for real assets.
Walbrook Economics spoke at the Institute of Economic Affairs Pre Budget Briefing on 4th March outlining the case for spending cuts and supply side reforms designed to enhance productivity. A webcast of the event will appear shortly.
This note, published in tandem with the Centre of Policy Studies paper, examines the investment implications of current monetary policy. While we have misgivings as to the efficacy of current monetary and fiscal policy , in terms of supporting sustainable productive growth, it leads us to a conclusion that equities remain the best hedge given likely policy choices. The bond bubble may continue for now, but this is an asset class that is very unattractive in our view. This note is available to our subscribers.