As widely trailed, UK interest rates were cut today from 0.5% to 0.25% - a record low level and the first cut for over 7 years. The decision to cut interest rates was approved unanimously by the members of the Monetary Policy Committee (MPC) and further cuts were not ruled out.

In addition, the Bank of England announced a range of measures designed to stimulate the UK economy. This included a £60bn increase in quantitative easing, taking the total to £435bn, plus the buying of £10bn of corporate bonds, issued by companies outside the financial sector.

The Bank is also introducing a new Term Funding Scheme, which will lend directly to banks at rates close to the new 0.25% base rate so that they hopefully pass on the lower interest rates to both businesses and households. The Bank estimates that the amount of money lent through the scheme could reach about £100bn.

From an investor’s viewpoint, after much talk over the past couple of years of rates rising, it seems clear that low interest rates are going to be with us for some time yet. With yields on cash at record low levels, savers and investors looking for income are increasingly looking at riskier assets, such as good dividend paying stocks and equity income funds. Certainly, the rate cut could be good for the stock market if not necessarily for the economy and the news saw the FTSE100 rise 1.59% on the day to 6740.16, whilst the pound fell against all major currencies.

If you are investing for income, or wish to reappraise your portfolio in the light of the interest rate cut, contact Kellands.

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