Investec Click & Invest comments on the impact of today’s interest rate rise on investors

Alex Neilson, Investment Manager, Investec Click & Invest comments on his positive outlook for the UK following today’s interest rate announcement:

“The Bank of England has given the UK economy a welcome tick of approval today by boosting interest rates by 0.25%, taking them to a post crisis high of 0.75%. This may not seem like an especially steep cost of borrowing, because it isn’t, but the Bank of England is on the route to policy normalisation and this is the first step.

“Today’s rise will be positive for sterling, which we expect to see strengthen against both the euro and dollar, just in time for summer holidays! Given the overseas exposure of FTSE 100 companies, 75% of earnings come from overseas, this will undoubtedly cause some share price falls as profits are reduced from the currency translation.

“The market will now be looking towards the path of rates in the future. In the event that we see hints at further rate hikes in 2018, we could well see stocks and bonds sell off in tandem, as the markets readjust.

“For now, the main takeaway from today is that the Bank of England is confident enough in the UK economy to start removing the life support machine, and we will be watching economic activity closely over the third quarter for any clues as to if the UK can breathe a bit of life into itself.

“For those with a high number of UK bonds in their portfolios, now is the perfect time to look at their maturity dates. Bonds are more exposed to UK interest rate rises and in a rising rate environment we would generally suggest holding bonds with shorter maturities, as these are less negatively affected by such rises. However, for those invested in equities the overseas exposure of FSTE 100 companies means that they are less likely to be impacted by this rate rise.”