UK Economy and Banks Struggle Under Spectre of Uncertainty as Bank of England Slashes Growth Forecasts

Alex Neilson, Investment Manager, Investec Click & Invest comments on the Bank of England’s interest rate announcement and economic forecast:

“As expected, the Bank of England kept interest rates the same today.  Given that inflation hasn’t been a cause for concern lately, and Brexit uncertainty looks likely to last well beyond the 29 March deadline, it’s hardly surprising the BOE didn’t deviate from 0.75%. The BOE’s cautious approach also reflects the fact that growth forecasts are coming down – in the UK and the rest of the world. According to the BOE, the UK economy is on course for its worst year in almost a decade, testament to the uncertainty plaguing global markets. Last night the EU also slashed its growth forecasts, citing concerns over China and Brexit. Italy, another grave concern, is now predicted by the EU to grow just 0.2% during the whole of 2019. Such a gloomy European outlook affects the UK, as the EU is Britain’s main trading partner and will continue to be so, regardless of the outcome of Brexit. Overall these are uncertain times for the global economy.”

“Consistently low interest rates contributed to the middling performance of EU and UK banks in 2018. Banks significantly cheapened over last year, with dividend yields now approaching near double figures for some. Value investors may start to question their bullish stance on banks, which are in danger of losing their reputation as cut-throat money machines and instead being seen as dividend paying utilities.”