In September the Bank of England held off from following the Federal Reserve (the Fed) and the European Central Bank (the ECB) with interest rate cuts.
When the US central bank, the Fed, cut its main interest rate by 0.25% at the end of July, it was the first decrease in over 10 years. Less than two months later, the Fed announced a second interest rate cut, by another 0.25%.
The Fed’s move followed on from a rate change at the ECB. Here, the main rate was left unchanged (at 0.0%), but the negative rate applied to deposits made by commercial banks was moved from -0.4% to -0.5%.
A bank leaving €1m with the ECB for a year will have to pay €5,000 for the privilege!
The Bank of England kept its interest rate unchanged at 0.75% in September, not least because, like the rest of the UK, it is waiting to see what happens on the Brexit front. Investors in government bonds appear to be expecting further interest rate cuts as the return available on gilts maturing in six months to 12 years’ time is less than the current base rate.
The central banks are worried about a slowing global economy and the risk of a recession. They are less concerned about their nations’ savers. This stance was highlighted in a headline in Bild, Germany’s best-selling newspaper, which took aim at Mario Draghi, the head of the ECB: “Count Draghila is sucking our accounts dry”.
Depositors in the UK are not yet facing negative interest rates, although there are plenty of bank and building accounts (including ISAs) closed to new business which pay next to nothing (e.g. 0.1% for the Halifax Bonus Gold account). At the time of writing, the best rate available for instant access was 1.61% from a sharia account, compared with the latest published CPI inflation rate (for August) of 1.7%.
There are still income yields of 4% and more available – for example the average UK share dividend yield at the time of writing was 4.23%. However, the higher income comes with greater risk to capital, making independent investment advice essential. There has been evidence enough just this year, in the problems at London Capital and Finance, that chasing the highest yields without advice can be a dangerous strategy.
We firmly believe that what is needed in these times is an IFA with a proposition which sees your investment managed actively and regularly and which offers a consistent approach and process across all investment risk profiles, whether you have £1,000 or £1,000,000 to invest.
Pembroke’s unique Active Money Management process managed in conjunction with award-winning professional investment managers reinforces our commitment to review and monitor your investment portfolio on an ongoing basis to ensure diversity, reduce investment risks and to seek to improve returns over the longer term.
We’re always here to discuss your Investment portfolio and your options – 2019 has proven to be an interesting year.
Please Note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
