Base Rate Increase and Slowing Inflation
On the 3rd of August the Bank of England raised the UK base interest rate to 5.25%. Despite this, there is a silver lining in the news. The data in July indicates that globally inflation is coming down and signs show it may have passed its peak. It’s looking hopeful that the higher interest rates we have experienced have had the desired impact of reducing inflation. The CPI figure announced on the 16th August, showed inflation in the UK reducing to 6.8% in July. This continued trend of downward pressure on inflation will help the MPC in making a decision about the next step with the bank base rate.
What Does This Mean for Stock Markets?
Stock Markets seem to have regained a more positive outlook since the favourable news in July. By no means are we out of the woods yet but the better news on inflation is helping to prepare the ground for the potential for improved investment returns from risk assets. Stock markets are forward looking and can see an improved backdrop, with lower borrowing costs for companies and individuals, which should help to support a sustained recovery in economic activity.
While we might still see some more interest rate increases, like the 0.25% one announced on the 3rd of August by the Bank of England’s Monetary Policy Committee (MPC), it seems we are nearing a point where these increases will stop. Central Bank policy is clearly having the desired impact of reducing inflationary pressure within the global economy – it is hoped that soon we will see the gradual reduction in interest rates starting to take place.
How Do You Maximise Investment Opportunities?
Equity Markets are already looking forward to reduced borrowing costs for companies and re-pricing improved fundamentals as a direct result. For the medium to long term, depending on your personal situation, now seems like a good time to consider investments in risk assets such as stocks and shares.
If you’re already invested, consider reviewing your current asset allocation. There may be a good case for making portfolio changes to enhance potential growth.
To quote Warren Buffet’s sage advice: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. Investing now and being proactive, when most people are uncertain of how to take advantage of the changed investment backdrop, offers opportunities to grow your investment capital.
What Does the Future Hold?
As always, it would be great if we could look through a crystal ball. However, the MPC are due to meet again on the 21st September to review interest rates. Within this period there are two further sets of Consumer Price Index (CPI) data to be released.
The reduction in the wholesale cost of energy will be reflected in the CPI data, which seems to ensure that the next inflation reading on the 16th August time will be lower. If this is the case, it will help to underpin confidence in the future direction of interest rates.
The Bank of England, albeit playing their hand cautiously, is expecting inflation to continue to weaken. Whether or not the MPC implement further increases in interest rates is almost immaterial as the end of the cycle now looks to be very near.
In summary, markets are offering interesting investment opportunities but taking advice will be essential to assess what strategy will offer the best potential for growth in your capital.
Campbell Mackie Ltd are always on hand to offer personal advice to assist you in taking advantage of the potential investment opportunities.
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