Political risk before the Autumn Statement

Shaun Port

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Investors are dealing with unprecedented political risk in the run-up to Philip Hammond’s first Autumn Statement. Here’s an overview of how politics is likely to affect markets in the coming months.

Political risk before the Autumn Statement

Uncertainty about the Autumn Statement

No Autumn Statement is set in stone until the last minute, so nobody knows for certain whether Philip Hammond, an unknown quantity, will continue with austerity or loosen it.

The Chancellor has talked about infrastructure investments and abandoning George Osborne’s deficit target. Indeed, some hope he’ll use government cash to invest in UK transport infrastructure, support exporters, or bankroll UK research and development. This would all be pro-growth.

But, in the wake of Trump’s victory, global bond markets are jumpy, and would be worried by excessive government spending. If Mr Hammond relaxes austerity too far, investors might begin to worry about the UK’s ability to service its debt. So the Treasury can only relax austerity so far.

Uncertainty in Europe

As if Trump and Brexit weren’t enough, Europe has more political uncertainty in store. An Italian referendum on the 4th December could bring down the Italian government, shaking the already fragile Italian financial markets, and endangering Italy’s embattled banks. Austria will hold a presidential election on the same day. Later in March, the Dutch will hold a general election, then the Front National will contest the French presidency in April 2017, and anti-EU Alternative für Deutschland will battle Angela Merkel’s CDU in the German general election at some point by October 2017.

The anti-establishment, anti-EU parties represent a threat to market stability across Europe. Collectively they mean that the risk of the European Union breaking up is no longer negligible.

Uncertainty in the US

Meanwhile, investors have been optimistic about the likely economic consequences of Trump. Putting aside the politics, we share some of this economic optimism. Trump’s plans to spend and deregulate are good for equity markets. The major economic downsides are that they are also pro-inflation and anti-trade. Damage to trade, including to the global free trade movement, will damage global growth.

But Trump remains a wildcard. Trump’s past performances are not necessarily an indicator of future outcomes.

Brexit uncertainty

Of course, this all combines with the single most important political uncertainty here in the UK: how Brexit will start and where on earth it will end. Nutmeg expects Article 50 to be activated on schedule early in 2017, followed by a relatively hard Brexit. Many share this outlook: business optimism is low, and this is having a particularly heavy impact on hiring intentions.

But once again we don’t know. We, like investors across the world, are managing these challenging conditions as best we can.


We’re holding conservative assets to hedge against uncertainty, including cash, short-dated gilts, and gold. But bonds aren’t as safe as they were. We were glad to have avoided some losses in the falling bond market by trimming our bond holdings in September and October. We are minimising exposure to European markets. Given the prospects for US growth under Trump we are optimistic about US equities, but more bearish about US bonds.

Opportunities will appear within a difficult political outlook, and we’ll be ready to make the most of them. You can find out more about how we’re investing from our monthly investment updates. And, as always, feel free to contact us (including on Facebook or Twitter) with any questions.

Risk warning: As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past or future performance indicators are not a reliable indicator of future performance.



Shaun Port
Shaun is the chief investment officer at Nutmeg. He has over 25 years’ experience developing and implementing investment strategies for clients ranging from central banks to pension schemes to charities and private individuals. Shaun holds a degree in Mathematical Economics from the University of Birmingham and is a Chartered Alternative Investment Analyst. He can be found tweeting @ShaunPort.

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