Wealth management experts have shared their views on the impact of the Bank of England’s interest rate rise for wealth management.
On 2 Aug, the Bank of England decided to rise the interest rate from 0.5% to 0.75% – the highest level since March 2009.
Commenting on the impact on wealth management, Dean Turner, UK Economist at UBS Wealth Management, said the bank’s decision did not surprise the markets, which priced in a rate rise following a run of relatively decent data in the second quarter.
Turner said: “What has caught commentators off guard is that the decision was unanimous. That said, to conclude that this was a hawkish hike would be a step too far, given the guidance for the inflation outlook remains broadly unchanged.
“We don’t expect to see further moves from the Bank ahead of leaving the EU. Monetary policy is unlikely to be the key driver for sterling in the markets in the short term, as the spotlight returns to the Brexit saga.”
Interest rate rise wealth management
Turner stressed that the political backdrop will remain challenging as the government does not seem any closer to reaching its conclusion on Brexit. For the pound to trade higher in the near term, we’ll need to see some of the uncertainty around the negotiations start to lift.
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Bartosz Golba, head of content, wealth management at GlobalData Financial Services, said as inflation has been creeping up, one of the aims of the bank’s decision is to encourage saving.
Golba commented: “GlobalData’s research shows that inflows into bank deposits and ISAs have been slowing down in the last few quarters, as consumers preferred to channel their assets elsewhere.
“Interestingly, most recently one of the asset classes preferred to deposits were fixed income investment funds, and performance of these in short-term is likely to actually be hit by BoE’s decision.
“This might indeed encourage risk-averse retail investors to go back to bank deposits, though it will be dependent on if, when, and to what extent deposit-takers decide to reflect the rate hike in rates they offer their customers.”
In Golba’s view, for the bigger institutional players, the interest rate rise comes as no surprise and will have limited impact on their strategies.
“They are likely to be more driven by the Fed and the US economy (as it will have influence on wider stock markets performance) and progress of Brexit negotiations,” said Golba.
James Lynch, manager of the Kames Absolute Return Constrained Fund, said the bank rate is a blunt tool for the MPC and there are a myriad of factors which goes into the collective judgement as to what level of interest rates the economy needs.
Lynch said: “The biggest of all of the factors is without a doubt Brexit, which appears to be the most unanalysable issue that a Central Bank could ever face. It is not only a standalone factor, it permeates all of the others such as productivity, fiscal constraints, investment, consumer confidence, the level of currency etc. “