60% of investors don’t expect UK interest rates to rise in 2016
The majority of UK investors expect interest rates to remain at record lows throughout 2016 amid persistently low inflation and the global economic slowdown, a survey by Legg Mason Global Asset Management has found.
According to the group’s 2016 Global Investment Study*, 60% of UK investors aged 40-75 expect the Bank of England (BoE) to keep the base rate at its record low of 0.5% this year.
Interest rates have been on hold since the height of the financial crisis, when most major central banks, including the US Federal Reserve, took emergency action to cut borrowing costs. The US central bank started the process of normalising interest rates at the end of 2015, prompting speculation the UK may soon follow suit. However, fresh headwinds since the New Year mean the majority of UK investors now expect rates to remain static until next year at the earliest. Indeed, 2017 is the most popular date when it comes to UK investors’ expectations for the first rate rise, with 41% predicting the base rate will rise next year.
Interest rate expectations have, it appears, been dampened by persistently low inflation. The consumer prices index (CPI) came in at just 0.3% in January, up marginally from the 0.2% reading in December, according to the Office for National Statistics (ONS). It was the third month in a row that CPI has risen, but the BoE has nonetheless forecast that inflation is unlikely to hit its 2% target until 2017.
The millennial view
Millennials are even more dismissive of a potential rate rise this year, with less than a third (28%) expecting action from the BoE, while 1% of respondents predicted rates will never rise again.
The results come against a backdrop of anxiety in global markets, fuelled by the oil price rout and a weakening US economy. As such, millennials are particularly fearful of a move to normalise interest rates, with three quarters (77%) concerned it will derail the UK’s economic recovery. In contrast, only 39% of those aged 40+ believed a rising rate environment would damage the UK economy.
Adam Gent, Head of UK Sales, Legg Mason says:
“Investors have always followed interest rates closely because of their focus on deriving an income from their savings and investments.
“Having been told consistently rates will stay ‘lower for longer’ it is perhaps no surprise they expect the first base rate rise to be delayed beyond 2016. In such an environment, income-producing risk assets remain pivotal for many UK investors, and we see nothing on the immediate horizon that will dampen their enthusiasm for investments that produce a decent real yield.”
Please get in touch for additional information about Legg Mason’s 2016 Global Investment Survey