BoE Remains Firmly in Easing Mode
Tom Stevenson, investment director for personal investing at Fidelity International, said: “The Bank of England’s Monetary Policy Committee remains firmly in easing mode as it predicts a growth slow down during the difficult Brexit negotiations ahead. Once again it has unanimously chosen to keep interest rates at 0.25% despite the Bank of England upgrading its forecasts for growth to 2% for 2017 and slightly increasing its expectations for inflation which it now believes it will peak at 2.8% in the first half of 2018. It believes continued stimulus is necessary because it forecasts growth to slow down to 1.6% in 2018 and 1.7% in 2019 as Britain negotiates its exit from the European Union.
“With the Old Lady of Threadneedle Street prepared to keep sitting on its hands when it comes to raising rates and with inflation expected to breach the central bank’s 2% target this year, anyone with savings still sitting in cash will struggle to generate real returns.
“One alternative is to look to the stock market. History shows there has been a sweet spot in the inflation range that suits equities well – normally at around 2% to 2.5%. Shares tend to perform particularly well if the rise in inflation reflects higher growth expectations rather than a wage spiral. This is the Goldilocks scenario for equities and it may well apply for much of this year and next.
“If anyone is unsure about the benefits of investing in stocks and shares over saving in cash then our calculations show that if you had invested £15,000 into the FTSE All Share index over the 10 year period from 31 December 2006 to 31 December 2016 you would now be left with £25,769. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £15,846. That’s a difference of nearly £10,000 – too big for any sensible saver to ignore.”
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