Omnis Analysis - What the UK rate rise means for investors

Omnis Analysis - What the UK rate rise means for investors

2nd November 2017

The move from 0.25% to 0.5% reverses the cut that was put in place immediately following last year’s EU referendum. This could be a signal of shift in policy from the Bank, which may well initiate further rate hikes in the months ahead to combat a rise in inflation.

“The nine MPC members voted seven to two in favour of a rise, but crucially the announcement was accompanied by minutes that painted a cautious picture on future interest rate increases due to the fragile nature of the economy and uncertainty over Brexit,” said Toni Meadows, chief investment officer at Omnis Investments.

“Policy makers also omitted language from previous statements saying that more hikes could be needed than financial markets expect. This implies officials are comfortable with pricing for two more quarter-point increases, roughly one by late next year and another in 2020.”

The Omnis Managed Portfolio Service and constituent Omnis funds are monitored daily, as are movements in equity markets, bonds and currencies.

Meadows notes that the Bank’s dovish tone on the future path of interest rates pushed bond yields lower, which is positive for UK gilt prices.

“It also hit the value of sterling and this is positive for our global bond and equity holdings,” he said.

“The UK equity market initially rallied but has subsequently settled back at similar levels to before the announcement.”

Across the Atlantic, today will also see the widely anticipated announcement of a new chair for the US Federal Reserve. The expected selection of Jay Powell instead of John Taylor also paints a dovish picture for the future path of interest rates in the US, and is broadly supportive of equity markets.

The value of investments and any income from them can go down as well as up and you may not get back the original amount invested. Past performance is not a guide to future performance and should not be relied upon. Always seek professional advice before acting.