Plus ça change, plus c’est la même chose

Amidst all the recent political changes, unexpectedly today the Bank Rate stayed the same – held at 0.5% for a further month at least. The rate has now been held at this level since March 2009.

Despite the markets and media expecting a quarter point cut in the Bank Rate, the decision by the Monetary Policy Committee (MPC) to hold off until early August probably makes sense. By then, the Bank will have more hard data to evaluate. It is also the meeting when the next Bank quarterly assessment is due - with forecasts for growth and inflation – so it would provide a better background and rationale for any further rate cut or Quantitative Easing (QE).

The economy has already had a bit of a boost from the fall in the pound, which helps exports, and also from the Bank’s decision to ease the capital requirements on commercial banks, which increases their capacity to lend.

The Bank’s decision was probably also swayed by the fact that the financial markets have actually been doing better than expected post-Brexit. Indeed, we are now technically in a bull market, with the FTSE 100 more than 20% up from February’s low of 5537.

However, despite the bull market, investors should not assume that all is back to normal. The post-Brexit fallout will continue to impact upon the UK stock market, as well as those around the world, for some time yet.

The bull market also disguises some major differences between market sectors, with some looking like Brexit winners and others more like losers. It is certainly not a nice simple 20% rise across the board, with some cyclical stocks also doing well alongside the defensive stocks.

So what is the message for investors and savers? Most investors already look to hold a well-diversified portfolio to ride out periods of volatility and this approach should continue. For younger investors looking for growth, choosing good dividend paying stocks or funds makes sense, as in an era of low growth, the compounding effect of reinvesting dividends can help achieve significant capital growth over the long-term.

Post-Brexit, it seems clear that higher returns on cash are still a long way off – maybe even five years or so. Whilst this is great news for mortgage holders, it is not so good for savers or income seekers. With gilt and corporate bond yields also very low, the only real option for savers and investors is to look at equities for higher yields, whilst recognising the additional risks.

To discuss your financial affairs in the post-Brexit world, contact Kellands.

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