Journalists’ inboxes were heaving under the weight of comments on the Bank of England’s announcement that the interest rate was being cut 25 points to 5%.
And frankly the industry response is understandable given the long-awaited cut after years of high rates.
The cut will prove only a chink of light for those on variable mortgage interest rates but experts are seeing encouraging prospects for markets.
Emma Moriarty (pictured above), portfolio manager at CG Asset Management says: “While not completely unexpected, today’s rate cut by the Bank of England has buoyed the gilt markets, and has also improved wider equity market sentiment. Listed funds in some of the longer duration asset classes – such as property and infrastructure – have been clear beneficiaries of this.
“While the Monetary Policy Committee did not give guidance on the pace and quantum of rate cuts to come, markets are now pricing in an additional two cuts for 2024. This seems in line with the downward direction of travel in headline inflation to date. Looking ahead, the key question will be how many rate cuts the Bank can reasonably make from here.
“Despite falling headline inflation, wage growth and services inflation remain sticky and elevated, and the Bank has warned that headline inflation looks set to increase over the latter part of this year. In a similar vein, consumption and growth have been stronger than expected, and the new Labour government’s focus on state-directed growth may mean that inflation – and interest rates – need to stay higher for longer than markets currently expect.”
Stuart Widdowson, portfolio manager at Odyssean Investment Trust says the cut will support investors increasingly looking to small to medium sized UK companies as market sentiment turns in the sector.
“Until recently people were very reluctant to look at new investments. What we hear from brokers is that people are interested now: it’s not just M&A activity and the mood music of our peer group is generally more positive.
“We, and other fund managers, are seeing shareholders and potential shareholders over the last quarter more open to putting assets into the small to mid-cap sector now and that’s a significant change from Q4 last year.”
Widdowson says investors may also be looking for stocks with a global reach beyond the Magnificent Seven.
“We do think one of the key catalysts for people reassessing UK equities is basically the momentum trade of the big seven stopping. We’re seeing people being open to invest in the UK and small to mid-caps and the UK is seen as a relatively safe haven now compared with the rest of Europe.”
As Emma alludes, the Monetary Policy Committee was cautious in explaining it’s decision to avoid any hopes of this being a start to a continued fall in rates.
It said: “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.”
But, hey, let’s take the chink of light – and hope for more to come.
Stephanie Spicer is head of content at Quill PR