Retail investors not too worried about a UK interest rate hike

3rd March 2016


With UK interest rates marking their seventh anniversary of being stuck at a historic low of 0.5%, new research shows that retail investors are not fearful of an increase in base rate anytime soon.

Broker The Share Centre asked 2,000 personal investors whether they were concerned about a potential increase in UK interest rates following on from the US Federal Reserve’s decision to raise the cost of borrowing by 0.25% in December.

Soon after the Fed’s move, speculation turned to when rates might rise in the UK, although with mixed economic data being released since,  a rise now seems some way off according to experts.

And it appears UK investors are not overly worried about monetary policy tightening either.

With the market having already fallen by more than 20% from its 2015 high and cash earning little in the way of interest, it may even be argued investors would welcome a rise in rates.

Not least because it would signal the Bank of England’s confidence in the UK economy.

Of the investors who expressed a view, nearly a quarter, at 24%, thought the inevitable increase in UK base rates would not happen until the third quarter of 2017 or later.

Such a continuation of low rates and loose monetary policy should be positive for corporate performance and earnings, but perhaps also underlines the fact that the UK economic recovery, as with economic conditions elsewhere in the world, is still fragile said the broker.

Richard Stone, chief executive of The Share Centre, said: “Interest rates have now been at their historic low for seven years. The last time rates were so stable was during the Second World War. Our research clearly shows that investors, many of whom maintain some of their savings in cash, are not fearful of interest rates increasing.

“The relaxed view of the potential for an increase in rates may reflect a desire to see a stronger message about the prospects of the UK economy, a desire to see returns on cash increase or may just reflect the fact that personal investors don’t see any such increase happening any time soon. If personal investors are right, base rates will have been at 0.5% for over eight years by the time we eventually see an increase.”

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