Chris Arcari, Head of Capital Markets at Hyamans Robertson says: “US equity markets surged yesterday as investor's were buoyed by potential tax cuts and a lighter-touch approach to regulation under a Trump presidency. Treasury yield also rose sharply, adding to October's rise, as both stronger near-term growth and potential inflationary pressures from trade tariffs and a crackdown on migration, led to expectations that interest rates might stay higher for longer. US bank stocks, in particular, rose strongly on the back of higher-for-longer rate expectations and looser regulations, with the oil and gas sector also benefitted. The Japanese yen, euro, Mexican peso all fell. The Japanese equity market benefitted from yen weakness while European markets sagged in anticipation of more difficult trading conditions ahead for some of the region’s largest manufacturers, with German autos particularly exposed. “Despite the larger than expected rise in net spending unveiled in the autumn budget, and the OBR's forecast of higher near-term inflation as a result, the Bank of England (BoE) has today lowered rates by 0.25% p.a. – only the second reduction this year. Headline inflation came in at a below-target pace of 1.7% year-on-year in September and while still elevated, service sector and wage inflation are coming down more quickly than the BoE anticipated in their previous monetary policy report. This opened the door for the BoE to make today’s change and lower interest rates, while still maintaining a relatively restrictive policy stance. The front-loaded nature of the spending and the OBR's forecast impact on near-term growth and inflation has seen the market shift to expect a slower pace of rate cuts from the Bank of England.”
Rupert Watson, Global Head of Macro and Dynamic Asset Allocation at Mercer, said: "The Bank of England (BoE) cut rates by 0.25% in a move widely expected by investors. We expect rate cuts are likely to continue however the central bank will want to take account of the fiscal position following the budget and may adjust their pace accordingly. The BoE will also want to consider the impact of the election of a new US President for the domestic economy. The overall picture in the UK is one of slow growth with a slight boost in 2025, but with inflation coming down to the 2% target the BoE has maintained its gradual easing stance.”
Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “A lot has happened since interest rates were held in September with weeks of pre-Budget speculation culminating in the Chancellor’s speech last week. Now, the Bank of England’s decision to bring the base interest rate below 5% could bring some Autumn positivity for people with housing costs and unsecured debt like credit card balances. However, as inflation is forecast to rise again through the winter, further cuts are likely to be incremental and the odds of a December cut are lengthening. Savers continue to have the opportunity to benefit from a higher interest environment with rates on best-buy instant access cash savings accounts hovering just below 5% and some fixed deals considerably higher. It’s a good idea for anyone with savings to shop around as rates vary widely across the market – in addition, while not always worth the switch by themselves, some high street banks are offering extra rewards for switching. It’s worth those who have emergency 'rainy day' savings covered considering an investment product like a stocks and shares ISA however investments can lose as well as gain value. If you’re able to take a longer-term view, saving into your pension has the potential to outpace inflation over a number of years due to the power of compound investment growth. Pensions are also incredibly tax efficient – last week, the Chancellor chose to leave both pensions tax relief and tax free cash rules alone.”
Simeon Willis, Chief Investment Officer at XPS Group said: “Given the boost to public spending and upwards pressure on inflation resulting from Rachel Reeves’ Autumn budget, the markets had factored in a less rapid easing of the Bank rate. This MPC announcement is in keeping with that revised expectation, although as is often the case, it is the longer-term rate of easing that is of greatest interest. Movements of 0.25% in themselves are relatively inconsequential. The path of expected rate reductions likely remains cautious particularly given the OBR’s inflation outlook for 2025 being above target.”
Anais Caldwell-Jones, Principal in LCP’s investment team commented: “This was probably a relatively easy decision. However, events over the last week or so have certainly created future challenges for the MPC’s rate decisions. Chancellor Rachel Reeves’ budget on Wednesday last week was big, both on taxation as well as additional borrowing. And of course, Donald Trump’s decisive victory in Tuesday’s US elections has fuelled concerns that his proposed policies will lead to more inflation, both in the US and more globally. We’ve already seen gilt yields pick up by around 0.3% since the Chancellor’s budget. Investors using leveraged strategies – such as DB pension schemes with Liability Driven Investment strategies – may want to take a quick look at their liquidity management arrangements to make sure they’re good to go should any cash calls materialise. Such schemes though should be pretty resilient given the work done in the aftermath of the 2022 mini budget.”
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