" class="no-js "lang="en-US"> Alex Neilson, Investment Manager, Investec Click & Invest comments on the effects of today’s Bank of England’s interest rate decision - Fintech Finance
Sunday, April 14, 2024

Alex Neilson, Investment Manager, Investec Click & Invest comments on the effects of today’s Bank of England’s interest rate decision

The Bank of England has today announced that it will not raise interest rates in May, which until only recently was widely predicted in markets. The immediate impact of this lack of movement has seen the Pound dip against both the Dollar and Euro, and as a result the FTSE 100 is trading moderately higher (due to the translation of overseas earnings on company profits).

The main concerns for the BoE are once again the anaemic growth we continue to see here in the UK, as well as inflation falling back to a more stable level after the higher points towards the end of 2017. Add to this a slowdown in the housing market, slow wage growth (although wages are at least now rising in real terms) and the worries over Brexit percolating through the background and you have the perfect scenario for policy paralysis.

An almost perennial concern for the BoE since the financial crisis has been low productivity rates in the UK, which many argue is due to reduced investment in new machinery and systems by companies. By keeping rates low the BoE is trying to force companies into investment rather than hoarding cash, or borrowing cheaply to invest in new equipment. It is yet to be seen if this policy will eventually start to encourage capital expenditure.

So how will this affect UK investors? Well, firstly your holiday spending money over the summer is going to seem a little more expensive, especially if you’re heading over to the USA. We have seen the pound fall back from recent highs to trade at 1.35 dollars to the pound. That being said, current rates are much better than last summer!

UK consumers holding tracker mortgages are likely to breathe a sigh of relief that their rates aren’t going to increase, that being said they are unlikely to go on a spending spree with rate rises still on the horizon.

The main worry for investors and UK consumers over the next few months is likely to be the increases in the oil price, with it currently trading over $70 a barrel. This will have a direct impact on consumers with increases in pump prices, as well as increasing inflation over the medium term.

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