Cut in interest rates predicted post Brexit
All the immediate predictions for UK interest rates following today’s historic Leave vote signalled a downward move.
This will add further pain for UK savers who have already endured seven years of rock bottom interest rates. Mortgage borrower might see downward movement too but banks could be more cautious about lending.
Here’s a summary of the comments from financial experts.
James Klempster, head of portfolio management, and Glyn Owen, investment director, Momentum Global Investment Management says:
“Interest rates in the UK, which we expected to stay at current levels for the next year at least even in the event of a Remain outcome, will now stay close to zero for as far ahead as we could realistically forecast. The same applies in Europe. It is increasingly likely that the Bank of England will cut rates from current levels of 0.5%, although the benefits to economic activity are unclear.”
Etienne de Merlis, Chief Investment Officer at Signia Wealth says: “Some investment banks now forecast two rate cuts by the Bank of England.”
"We could see return of quantitative easing"
Strategists at BlackRock say: “The Bank of England’s first priority will be to provide ample liquidity to avoid any funding stresses, in our view. The magnitude and volatility of the British pound’s fall will likely dictate further responses. We expect the central bank to cut its 0.5% policy interest rate to zero soon, and see it returning to quantitative easing rather than pushing rates into negative territory. We expect credit rating agencies to quickly adopt negative outlooks for UK government bonds, with downgrades to follow.”
Shaun Port, chief investment officer at Nutmeg says: "In terms of UK economics, we expect to see extreme market volatility and big hits to business confidence. This will have a knock on effect for savers - banks have already started to lower rates and there is lots of speculation the Bank of England will cut interest rates to zero. We expect mortgage rates will go down and might be harder to obtain given banks will be more cautious about the property market."
Those who want to remain in the safe haven of cash need to be proactive, making their savings work as hard as possible. Continue to shop around for the very best rates you can find, which may include high interest current accounts or fixed rate bonds, in order to access better rates.
- Don't miss Moneywise's best savings rates - updated every week
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.