Why a cut in interest rates?
This stimulus package and the headline news that the BoE would be lowering interest rates to a 300-year low, came after recent signs of lowered expected economic growth in many industries. Specifically, a sharp fall in the service sector, factory activity down and the UK construction industry shrinking at its fastest rate in seven years. The reduction of growth and increasing uncertainty has led to many economic experts giving a 50/50 chance of the UK falling into a recession.
By lowering the interest rates to 0.25%, the BoE hopes to stimulate the economy in the wake of the Brexit referendum.
Leading up to the announcement at 12pm, opinions were divided. Many had pointed to the fact that the shock that had hit the economy was a political one, that could not be easily solved by monetary policy.
As previously reported, on July 1st EValue conducted an accelerated update of our asset allocations and optimum portfolios to reflect the changed economic conditions, in particular reduced yields on government bonds that followed the Brexit referendum. This 1st July update, and the scenarios that were run to create it, reflected the slowing down of economic growth and fully anticipated the potential lowering of the interest rate.
EValue aims to support our clients, and in turn their customers, by conducting regular updates of our asset allocations and optimum portfolios. As standard these updates are scheduled for every quarter. However, as shown in the wake of the vote to exit the EU, EValue are able to conduct ‘out of schedule’ updates that are made available to our clients either to simply demonstrate the direction of travel, or for implementation in their adviser and consumer products.
Mark Grimes, Product Director at EValue commented, “The cutting of interest rates was widely signposted and anticipated by the markets, as shown by the EValue yields in recent weeks. The size of the expansion of QE may come as a shock to some and may signpost the headwinds the bank sees for the UK economy.”
If you like this blog, please spread the inspiration by sharing this blog with your business colleagues and friends on LinkedIn, Twitter, Facebook and Google+