The Bank of England’s decision to keep interest rates at a historically low 0.1 per cent last month raised eyebrows from much of the market. The BoE had hinted that concerns around UK inflation might see them become the first central bank to raise rates since the pandemic began.
Since then, inflation has jumped to its highest level in almost a decade, reaching 4.2% for the year to October. This sparked firm belief among investors that the BoE will finally do the deed and raise rates when it meets this month. Although the recent impact of the Omicron Covid variant could change that.
Whatever happens, interest rates are likely to stay low. As Coutts’ Chief Investment Officer Alan Higgins explains: “Even the pressure to curtail inflation should only see rates rise by a fraction of a per cent, probably to 0.25 per cent.”
That could be seen as a compelling case for investing.
Alan says: “The days of healthy returns above inflation from sitting on cash are long gone. The ultra-low interest rate regime endorsed by central banks since the 2008 financial crash isn’t going to change any time soon.
“People need to look elsewhere – investing for example – to try to grow their money faster than inflation over the long term. None of us can expect money for nothing any more.”
It’s worth remembering that, when investing, the value of your investments can fall as well as rise, and you may not get back what you put in. You should continue to hold cash for any short-term needs.