"When the Bank Rate shifts it transforms the baseline assumptions for cash, credit and capital alike. For savers, the implications will arrive quickly. Cash held in deposits and fixed-term products will earn less as reference rates decline. Savers who stay entirely in cash when inflation remains above target and interest rates are falling are likely to see real returns erode. With inflation still at 3.6% and deposit yields poised to move downward, the risk of negative real returns looms."
"A lower Bank Rate reduces the discount applied to future earnings, altering valuations across equities, bonds and real assets. A policy-step of this kind lifts the value of future cash flows. The early adopters in such environments stand to benefit; those who cling to yesterday's assumptions may be late to the party. Various segments, long-duration equities, infrastructure, real-estate plays and selected credit, typically attract interest at the onset of an easing cycle, though firms and investors must still manage fundamentals and timing."
UK consumer price inflation cooled to 3.6% in the year to October, down from 3.8% in September. The Bank of England Monetary Policy Committee recorded a narrow 5-4 vote to maintain the Bank Rate at 4%, with four members preferring an immediate 0.25 percentage-point cut. These developments increase the likelihood of a rate cut in December. Lower Bank Rates reduce discounting of future earnings, lifting valuations for long-duration equities, infrastructure, real estate and selected credit. Savers face falling deposit yields and the prospect of negative real returns while investors may reposition toward assets benefiting from easing.
Read at London Business News | Londonlovesbusiness.com
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