Investment market update: November 2023

Inflation and interest rates – is there light at the end of the tunnel? It’s fair to say that the tunnel has been a bit longer than expected, but finally, there is reason to be cheerful with the seemingly endless round of interest rate hikes coming to an end. 

Legal & Medical's November 2023 investment market update

A leap of faith…

For the last two Monetary Policy Committee (MPC) meetings, the Bank of England has left rates unchanged at 5.25% as they adopted a ‘wait and see’ approach in the hope they had done enough in the battle against inflation.

Their decision to hold off appears to have been correct, as the latest inflation figures saw another fall in 12-month CPI inflation to 4.6%. We, therefore, have increasing evidence of being on a downward trajectory. Mr Sunak has managed to deliver on his promise of halving inflation by the end of 2023, although it is debatable how much of this credit should go to the government as opposed to the Bank of England. Or, indeed partly, to the simple fact that energy costs have eased a little and the supply chain issues have improved, which in turn has eased the inflation rate.

Further afield – whether in the US or the EU, inflation also looks to be on the retreat, and there is comparable hope that rates have similarly peaked there.

Indeed, markets are already pricing in the possibility of rates being cut in 2024, which is feeding through already to the mortgage market. For example, the rates that are used to price mortgage borrowing have allowed some lenders to offer 5-year fixed rates at below 5%, again, with predictions of further cuts expected.

What does this mean for your investments?

Primarily, most portfolios hold a combination of shares and fixed-interest investments. The higher-risk portfolios usually have more shares, and the lower-risk portfolios have a greater proportion of fixed interest. 


It’s generally the case that high inflation and rapidly rising interest rates are not positive for investment markets. Some of the main indexes such as the FTSE 100 and the US S&P 500 have traded sideways over the last year, and have had periods of significant volatility.


As mentioned in earlier articles, the big ‘loser’ over this period has been the fixed interest – or bond market (not to be confused with investment bonds). Base rates rising meteorically from 0.25% to 5.25% in only a year and a half led to a rapid rise in bond yields and an equivalent fall in bond values. Across the board, whether government or corporate bonds, shorter or longer-dated – all were affected.

But the good news is that – whilst nothing can be guaranteed, bond prices are showing signs that they have bottomed out and have recently started rising. The market believes that we will see central banks cutting rates next year, which has led to bond yields dropping back down, and capital values showing early indicators of recovery. If, as is hoped, interest rates do ease back on a steady basis, it should mean that we see a similarly steady recovery in bonds.

Legal & Medical Model Portfolio positioning

Against this backdrop, we continue to focus on the importance of dividends and owning quality businesses in the equity elements of our portfolios, characterised by solid earnings, good financial management and the ability to pass on cost increases to customers.  These businesses are best placed to navigate the current environment. In bond elements within our portfolios, we continue to focus on the bonds of high-quality businesses close to maturity, which offer an attractive level of return and typically exhibit a low level of risk.

We will provide a summary of any rebalances or changes following our next Investment Committee meeting in December.


Our guidance remains as before, investment is for the long term. Over time, we trust the Bank of England (and the Federal Reserve in the US) to get it right, and we see more lasting evidence of inflation being brought under control and an easing in interest rates.

Indeed, the bank’s aim is for inflation to be back at close to its 2% target by the end of 2024, and for interest rates to level off and start to fall back to more normal levels. Quite what those ‘normal’ levels will be will continue to be a matter of debate.

Once the markets have confidence inflation is under control, we would hope for a boost for portfolios, particularly the bond holdings to follow suit.

If you would like to speak in more detail about your portfolio, please do get in touch with your specialist financial adviser.

This article should not be interpreted as specific advice, as always we would urge you to contact one of our specialist advisers, who will look at your own circumstances before advising.

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