It was not really a surprise that the Bank Of England base rate was held today at 0.5%. Rates have been low for what feels like an eternity and they’re likely to remain at this level for some time yet. The big news was the Monetary Policy Committee’s decision to inject an extra £75 billion into the economy to protect the recovery and to prevent a further slip into recession.
I was interviewed earlier today on Q radio for their Drivetime show. The interviewer wanted my thoughts on the Monetary Policy Committee’s announcement. The interview lasted a few minutes but was edited down into a 20 second soundbite. The editing was clever enough to make me sound very negative in my outlook. There is a crisis of confidence and this anecdote highlights how much the media delight in the negative, ignoring any remotely positive comments. This does no one any good, other than perhaps the big hedge funds who bet large on disaster!
So what is QE? Quantitative Easing is basically the Bank of England buying assets (government bonds or “gilts”) from the banks who sell to the central bank because of the lowering of yields on the gilts by the increased market value of them caused by the increased demand. Instead of owning these gilts the high street banks are supposed to seek better returns by lending to consumers, businesses and the first time buyer.
I spent yesterday at an investment conference in Birmingham listening to speakers from Goldman Sachs, 7IM and SEI. There is no glowing news story out there and the outlook is fairly gloomy but there are some grounds for optimism. There is little support for the armageddon scenario in which the sky falls in but the consensus view among these investment houses is that markets will remain volatile while the coalition governments of Europe and the split congress of the USA continue to bring us to the brink of disaster and back again for the foreseeable future. The lack of strong leadership means that nobody is taking the decisive action needed by the markets.
For savers and pensioners today’s news isn’t great but more investors looking to put money away for the medium to longer term there are opportunities in the current economic environment and growth markets to tap into but a well diversified portfolio has never been more important.
The Belfast Telegraph quoted me on Friday. Click here to view the quote.
By David Gibson