Perspectives: Episode 64 – The Lady is for turning – how the new UK PM nearly brought down the pension system

In this episode, Escala Partners CIO, Tracey McNaughton, shares her views on the UK fiscal fiasco and how it sent a shockwave through the currency and bond market and nearly brought down the UK pension system. What role did the Bank of England play in setting us up for last weeks’ meltdown and could it be repeated elsewhere?

 

(0:55) - Last week, the UK’s new Prime Minister delivered a mini budget that sent shock waves through the UK financial markets.

(4:10) - Beyond the impact on inflation, the moves last week revealed vulnerabilities in some corners of the financial system, such as in the defined benefit pension market.

(7:41) - So, this circular process of forced sales had to be stopped because it would have driven yields even higher. That is when the Bank of England intervened.

(10:23) - We have been living with low interest rates for some time. UK pension plans have been dealing with this problem for some time and the regulators did nothing?

(12:04) - Could the dramatic about face from the Bank of England create a precedent for potentially others to follow?

(14:08) - Risk is clearly very high at the moment, so the focus for investors should be on risk management rather than return management.