Danni Hewson, AJ Bell head of financial analysis, comments on the market reaction to the latest Bank of England interest rate decision:
“It wasn’t what the Bank of England did today that’s set investor pulses racing, but what was carefully threaded between the lines of those minutes and the comments from Andrew Bailey in the post-meeting press conference.
“Whilst a June rate cut isn’t nailed on it is now most definitely on the cards and after months of being told not to get over-enthusiastic the Bank of England governor now says markets might be being too conservative in their expectations.
“Investors had been treading water ahead of today’s MPC decision but as soon as the vote was announced the FTSE 100 surged to a fresh intra day high. And it was a smorgasbord of sectors feeling the warm balm of those tailwinds.
“Retailers like JD Sports and Frasers Group, supermarket Sainsbury’s, pub and hotel group Whitbread and would-be house movers’ favourite Rightmove all saw shares rise.
“Whilst rate cuts won’t make an immediate difference to many household budgets, it will make people feel more confident about the state of their finances. If they’ve got fixed rates coming to end in the next year, remortgaging costs are likely to be cheaper and buyers who had been putting off a move might now jump off the fence.
“As borrowing becomes less expensive and cash savings rates less attractive people could be prepared to splurge a little more than they have been.
“But it’s important to note that the Goldilocks scenario which would allow ratesetters to make the move next month also means the economy remains pretty tepid. Whilst tomorrow’s GDP figures are expected to officially stamp the country with an out of recession label, growth is still expected to remain turgid.”
