The value of investments and any income from them can fall and you may get back less than you invested.

US and Europe hint at more rate cuts

Share

Download market review and economic roundup PDF  

Attention has been focused this week on the possibility of interest rate cuts in the US and the eurozone, and a potential change of direction in the UK, with many analysts believing that the Bank of England may be forced to cut rates in the event of a no-deal Brexit.

The US Federal Reserve Open Market Committee (FOMC) met on Wednesday and, while it held rates steady on this oc-casion, the markets are betting that it will cut rates next month, with another cut likely towards the end of the year.

Fed Chairman Jerome Powell was at pains to point out, however, that this was far from a foregone conclusion and that events during the next month - most importantly the meeting between President Trump and Chinese Premier Xi Jinping at the G-20 summit next week in Japan - will be important in determining if and when a rate cut will take place.

Head of the European Central Bank Mario Draghi was more forthright, suggesting that “additional stimulus” would be re-quired unless eurozone inflation returned to its 2% target. Inflation in the bloc stood at just 1.2% in May. The ECB could cut rates or restart its multi-billion euro bond-buying programme to add liquidity to the eurozone and help boost spend-ing. Its other option, reportedly preferred by many ECB officials, is to cut interest rates to below zero - deposit rates are already at -0.4%, meaning banks have to pay to deposit money with the ECB. Cutting the rate further into negative terri-tory would make it even more expensive for banks to hold on to their reserves and would instead encourage them to lend. The idea, once again, is to boost spending and push up prices.

In the UK, annual inflation fell back to its target rate of 2% in May, according to the Office for National Statistics (ONS), down from the 2.1% annual rise reported in April. The fall was due to falling energy costs, which spiked in April, and competition in the car industry following a fall in sales over the past year. The news has taken pressure off the Bank of England to increase rates and cool price pressure in the economy; high employment, strong wage growth and above-target inflation had been leading many commentators to push for a rate rise to bring inflation back down. However, on Thursday, the Bank of England voted unanimously to hold rates steady at 0.75% while simultaneously cutting its fore-cast for economic growth for the second quarter to zero from its previous forecast of 0.2%. With further downside risks caused by global trade tensions, a deteriorating outlook for global growth and rising chances of a disorderly Brexit, the data is more suggestive of a cut to UK rates than a hike. The chances of a no-deal Brexit in particular have caused mar-kets to raise the odds of a rate cut before the end of the year. The Bank has refused to explain why it has kept its for-ward guidance on rates the same, despite acknowledging that downside risks to growth have increased. As if to empha-sise the challenges facing the UK economy, retail sales data released on Thursday showed sales falling at an annualised rate of 0.5% in May, as unusually cool weather was blamed for keeping shoppers at home.

 

 


 

The value of investments and any income from them can fall and you may get back less than you invested. Past performance is not a guide to future performance and performance is shown before charges, which would reduce the illustrated performance.

No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us. We or a connected person may have positions in or options on the securi-ties mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. In addition, we reserve the right to act as principal or agent with regard to the sale or purchase of any security men-tioned in this document. For further information, please refer to our conflicts policy.

If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset.

The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd. The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

Your next steps

Manage your wealth

Start a conversation

Find out how we can help guide your wealth journey, by requesting a callback from a member of our team.

FIND OUT MORE
CLOSE

REQUEST A CALLBACK

I am ready to start a conversation

Find out how we can help guide your wealth journey.

We will match you to the Brewin Dolphin office that is closest to your Post Code for your initial conversation.

Please select if you would like to choose a Brewin Dolphin office other than the one closest to your post code.

Understanding your level of wealth will inform our conversation about which services would be most suitable for your circumstances.

Are you a Brewin Dolphin client?

We respect your privacy and take protecting it very seriously. We will only use your data in order to arrange a meeting to discuss your needs (as explained above) and as set out in our Privacy Notice. In keeping with our existing practice, we will never sell your personal data to any third parties. You can change your preferences for how we use your data at any time by contacting your usual contact at Brewin Dolphin by phone, post or email. Please allow 14 days from receipt of your information for any changes to be reflected across our systems. 
We do not sell, rent or loan any identifiable information collected on this site. Any information that you give us will be treated with the utmost care and security. It will not be used in ways to which you have not consented.

Get started in minutes

Start investing online

Start investing from £2,000 with the Brewin Portfolio Service. Sign up online. Simple, accessible and cost efficient. Capital at risk.

FIND OUT MORE

Receive our insights

Stay updated

Receive email updates with news and views from Brewin Dolphin and information on our products and services.

FIND OUT MORE
CLOSE

Newsletter Signup

Stay updated

Receive email updates with news and views from Brewin Dolphin and information on our products and services.

Capturing your post code will allow us to tailor some of our communication to include regional views and updates that may be of interest to you.

We respect your privacy and take protecting it very seriously. We will only use your data in accordance with your preferences stated above. In keeping with our existing practice, we will never sell your personal data to any third parties.

If, in the future, you would like to update any of your marketing communication preferences, you will receive an email that will provide a link to our Preference Centre.