Bank of England stands firm on Interest Rates: Fidelity comments

Commenting on today’s MPC decision to maintain interest rates, Tom Stevenson, investment director for personal investing at Fidelity International, said:

Despite the Federal Reserve’s well-flagged rate hike yesterday and the promise of more rises to come, the Bank of England continues to tread carefully. The MPC voted 8-1 to keep interest rates at an all-time low of 0.25%.

Even with inflation expected to breach the central bank’s 2% target this year and unemployment at its lowest since the 1970s, the Bank is keen to keep rates low ahead of Article 50 and two years of uncertain Brexit negotiations. The danger this presents is the Bank getting behind the curve as price pressures increase. When it comes to inflation, you can’t put the toothpaste back in the tube.

In this environment of lower for longer interest rates and rising inflation, it is even more important to find alternatives to the meagre returns currently offered by cash. With  global economic growth picking up, shares offer investors a much more attractive potential combination of growth and income.

For anyone who is unsure about the benefits of investing in the stock market over stashing cash under the mattress, our calculations show if you had invested £15,000 into the FTSE All Share index 20 years ago you would now be left with £53,974. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £19,877. That’s a difference of over £34,000 – too big to ignore.

Author: Dylan Jones

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