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Urgent media opportunity - BoE rate decision

ended 01. February 2023

On Thursday, the Bank of England is expected to raise rates again in an effort to control inflation, and a number of journalists across national, trade and local media outlets have asked Newspage to seek views from IFAs and wealth managers on what this could mean for investors, e.g.

  • What, if anything, do rising interest rates mean for investors?
  • Which asset classes become attractive as interest rates rise, and why?
  • If you have a diversified portfolio, are rate rises largely irrelevant?
  • As a multi-decade era of low interest rates has come to an end, has what constitutes a diversified portfolio changed? How?

Answer one or all of the questions, or jot down any other insights or thoughts. If you’re a Premium user, your response will be edited by an experienced news journalist.

7 responses from the Newspage community

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Editor
Wes Wilkes
CEO at IronMarket Wealth
Rates are going up again and the rhetoric will be strong on tackling inflation. Much like the US though, trying to anchor to an inflation target of 2% is seemingly more and more impossible to achieve and indeed we are starting to see clear signals of the BOE blinking first. Coupled with an impending recession, it wouldn't surprise us if we even saw a cut in rates in late 2023 or very early 2024.
For any portfolio, rates & inflation remain a risk as markets attempt to price pauses & cuts against recession and economic destruction.
If savers haven't locked in some of those 4% plus savings accounts now, it is a really good time and let's rejoice for once, the bond side of your portfolio is delivering a yield!
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Editor
Scott Gallacher
Director at Rowley Turton
The good news is that increasing the base rate could lead to better savings rates. However, given recent memories of Lis Truss's mini-budget debacle, investors would be forgiven for being concerned that rising rates could hit bond prices. Fortunately, I think the market will have priced in this latest rate rise. Consequently, I don't think there is a need for investors to panic.




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Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The Bank of England has a simple, narrow mandate. Keep inflation at 2%. The general population is feeling the pain of sky-high inflation, the economy is weak and the government have loaded us with a huge tax burden, despite predictions we will be the only major economy to decline this year. It’s time for government to change course or be booted out. Cut taxes, allow the bank to keep rates stable and see growth return to the economy. Unfortunately, there are no signs of either, so expect higher rates and taxes and a deeper recession than is necessary. Investors should look for defensive stocks like healthcare and utilities, as higher costs for borrowing mean growth stocks are hit hard, look at the tech-heavy NASDAQ in the US, 30% off it's highs. Cash savers will also benefit, of course. Check the best buys for cash ISA rates the day after.
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Philip Dragoumis
Director and Owner at Thera Wealth Management
The rapid rate rises last year led to significant losses for investors holding government bonds. The FTSE UK Conventional GIlts All Stocks Index for example fell 24% in 2022, with similar declines in the US, the biggest ever annual losses on record. Investor portfolios always include bonds and cautious investors hold more bonds than equities making last year particularly painful for them too.
However, the flip side is that yield after being in hiding for over 15 years is back. If you think that longer-term inflation will fall to the 2% BOE target, current 10-year yields of 3.5-4% mean that you are finally receiving a REAL (after inflation) return. Developed market government bonds are still risk-free,will not default and if there is a recession in the UK, interest rates could be cut meaning these losses could be reversed.
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Steven Rowe
Director at Lucent Financial Planning
As interest rates rise, to fight off the wealth-reducing fiend that is inflation, investors must ensure that they are in asset classes that have a realistic chance of at least matching or beating inflation. This is not a question of what is most attractive, but what is least attractive. Fixed incomes in form of government and corporate debt will likely not match inflation in the long term. Only equities/shares give a realistic chance of long-term outperformance. This makes sense, as for inflation to exist, companies must be making profits to pay higher wages to keep inflation going. As an investor, you would share in these higher profits. This is the argument behind the government's refusal to give higher wages to nurses etc. A globally diversified investment portfolio predominantly in equities gives you the best chance of success.
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Keith Boyes
Managing Director/ Chartered Financial Planner at Spentwell
Any hikes in interest rates do not fundamentally change the merits of a widely diversified portfolio. It's about following the academic evidence, looking out of the window and over the horizon, 10,20,30 years from now and importantly focusing on what is important to you in life and what you want to achieve. That's what should drive client decisions. One school of thought is that the diversified portfolio is dead because we saw both the great companies of the world (equities) and loans to governments and companies (fixed interest) both simultaneously drop in value, however when we look at the evidence we see that has happened 5 times in 83 years - that means in the other 78 years that diversification has acted positively for investors with fixed income providing a useful buffer in choppy waters. Be the wolf, not the sheep.
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Austyn Johnson
Founder at Mortgages For Actors
For some property investors, a 0.5% rise will mean hundreds of pounds a month more on their mortgage payments and a significantly reduced income. Its not ideal for them to keep raising rates and this will drive rental income up fast. That will mean renters struggle to pay. The BoE really needs to be careful with the frequency of these rises.