After the Bank of England launched an intense stimulus package on Thursday in an attempt to secure the British economy from a recession, it’s time to find who will benefit from the all-time low.
Britain’s interest rates have been cut from 0.5% to 0.25%. This cut represents a record low in the UK’s history and is also the first rate cut since 2009.
In addition to that, the Bank also announced further measures to vitalize the UK economy. This includes a £100bn scheme to get banks to pass on the low interest rates to households and businesses.
Let’s have a closer look at who will be winning from the latest rte cuts and who might actually be at a loss.
TOP: Property investment
The latest cut in rates will attract more buy-to-let investors to the market, estate agents Ludlowthompson forecasts. The company’s chairman, Stephen Ludlow, explained: “A low interest rate environment is inevitably going to boost buy to let. Those storing cash risk seeing its value fall over time, whereas London’s buy-to-let market has consistently outperformed. Although the market had already started to signs of recovery from the shock of the Brexit referendum, the interest rate cut provides a much needed boost.”
The weak Sterling, which has dropped slightly after the rate cut was announced, turns bricks and mortar into a great – and cheap – investment opportunity for foreign investors who are considering buying into the UK market. This, in return lifts the spirits of British developers and sellers.
KPMG’s UK head of retail, David McCorquodale, explains the situation quite simple by saying: “For saving pensioners – who are not earning much on their savings as it is – the rate reduction is likely to leave them slightly worse off and subsequently they will feel a slight squeeze on purse strings.”
“For borrowers, mainly mortgage holders, the rate reduction will be good news, but it will take time for any benefit to trickle down with many mortgage holders having opted for fixed-term mortgages of 18 months to five years,” McCorquodale says.
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Pensions have had a rough ride in recent times and monetary policy continues to be rather unpleasant medicine for pension schemes. Tom McPhail, head of retirement policy at Hargreaves Lansdown, says: “It may be supporting asset values and keeping the economy turning but it is also driving down annuity rates and driving up final salary scheme liabilities. This means employers are having to pump more and more money into final salary schemes and individuals are having to save more and more. Too much of this medicine is not healthy for anyone’s finances and for final salary schemes in particular, there is a risk that it may actually be killing the patient.”