Will negative interest rates in the UK trigger an investor top-up?
The Bank of England’s threat of negative interest rates will encourage market-wise investors to increase their exposure to UK stocks, says Nigel Green CEO of one of the world’s largest independent financial advisory organisations, deVere Group.
The UK’s central bank on Thursday committed to leaving interest rates unchanged at 0.1% and maintaining its agenda of quantitative easing (QE) – the BoE’s programme buying government bonds and corporate bonds.
The UK’s benchmark fell on the Bank of England’s "unusually uncertain" outlook for the economy. This is a predictable knee-jerk reaction from the markets.
For the time being, the BoE avoided taking the plunge into negative interest rates, instead deciding the less risky measure is to maintain the Bank’s £895 billion quantitative easing (QE) programme.
However, it is clear that as the Bank tries to bolster the pandemic-stricken British economy, negative interest rates remain part of the ‘tool kit.’
Indeed, they have been very deliberate in not taking this highly controversial option off the table.
Should the BoE decide ultimately to take rates below zero, as already tried in the European Union and Japan, it would be the first time that they have done so since the Bank was founded in the 17th century.
Question marks remain as to whether negative rates would achieve the primary aim of supporting the economy.
This is because the move could be viewed by consumers and investors that the economy is in a perilous position and, as a result, trigger a serious drop in consumer and investor demand.
Whilst the debate on whether negative interest rates help the ‘real economy’ or not will continue, there is no doubt that they would help boost financial asset prices.
With this now front and centre in their minds, investors will now be looking to top-up their portfolios before the next round of cuts and the likely subsequent price increase. They’ll be moving to capitalise on the lower entry points now before the next significant rally.
In addition, those with savings in the bank are already getting no return thanks to the ultra-low interest rates. The threat of negative rates will offer them more reason to increase their exposure to stocks.
It’s my view that with the economy how it is, and the hint-dropping from Bank of England, rate cuts are looming as it’s increasingly clear that the quantitative easing agenda is not sustainable.
This will push up financial asset prices and, as such, many investors will be wanting to get ahead of the curve and build on their wealth. The best way, as ever, is to bolster portfolios, ensuring they are properly diversified across asset class, sector, region and currencies.
When the experts at Next Investors have a stock pick, it may pay to listen.
The Next Investors have been investing in ASX small cap stocks for years, with their best small cap picks yielding returns of 1,200%, 1,120%, 900% and 678%.
They have just revealed their hand-picked, FY2021 stock portfolio of high conviction long-term investments.
Click the link below to see what they are currently investing in.
S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.
Conflict of Interest Notice
S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.
The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.