The Fed finally raises rates

The Federal Reserve Bank (Fed) raised interest rates on Thursday, so will the Bank of England now follow suit?

The market reaction to this rise was positive, even though the 25-basis point rise to 0.25-0.5% is still very low and US policymakers have stressed that any further increases will be small and gradual. But as it was back in December 2008 when the Fed last moved interest rates, with a cut to near zero, a rate rise comes as a novel experience for many traders.

Last time, the Bank of England (BOE) followed three months later, with a cut in March 2009 to the current rate of 0.5%. So the question on most people’s lips is will we now see a rate increase in the UK? It would certainly be welcomed by savers and investors, if not by mortgage holders.

Most experts have a view. Some predict the second quarter of 2016, others don’t expect a rise until late 2016, early 2017. With inflation at effectively zero, somewhat slower GDP growth and questions remaining over productivity, the BOE is unlikely to rush into a rate rise. Indeed, it is likely to watch the outcome and impact of the US increase before making any move.

For investors looking for income, it therefore seems that the long wait continues. Perhaps a low interest rate environment is the new normal? Over the past few years, many income investors have looked towards equity income funds and corporate bond funds, in search of attractive yields along with the potential for capital growth. Obviously, unlike cash, they are not guaranteed and so may fall in value, which means you could get back less than you invest.

For help or advice on investing for income, contact Kellands.

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