Super Thursday for the Bank of England

The first Thursday in November – coincidentally Guy Fawkes’ Day – was a “Super Thursday” for the Bank of England.

These now occur once every three months and see an avalanche of information emerging from the Bank. The Monetary Policy Committee’s decision on interest rates is accompanied by both the meetings’ minutes and the Bank’s Quarterly Inflation Report. It all emerges at midday, leaving market professionals the rest of the day to interpret the Bank’s latest thinking on the economy and future of interest rates.

The analysts’ general consensus this time was that the Bank had turned ‘dovish’, i.e. it had put back the timing of the first interest rate rise. In July the Bank’s Governor, Mark Carney, had said that the decision to raise interest rates “will likely come into sharper relief around the turn of this year”. This comment had encouraged the markets to expect that the Bank of England would be making its first increase in rates early in 2016, following on from a move by the US Federal Reserve.

However, at the Super Thursday press conference, Mr Carney made clear that in the Bank’s view the circumstances had changed: “There have been some notable events in intervening months, including developments in emerging economies.” The net result is that a move from 0.5% base rate (originally set in March 2009) now appears unlikely in 2016. Looking further out, the implied market forecast is for a base rate of 1% not to arrive until the end of the following year.

The effect on savings rates is that it is impossible to obtain a guaranteed fixed return of 2.5% unless you are prepared to lock your cash away for at least three years. As Mr Carney has already demonstrated, much can happen in only four months, let alone three years. If your need is for income, the many non-deposit options are well worth considering, especially with next year’s changes to dividend taxation.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.