As the dust starts to settle following the EU Referendum result, one immediate impact is on interest rates.
The vote to leave has created a sense of uncertainty around the prospects for the UK economy outside of the EU and that's evident by the fall in the FTSE 250 index of company shares, an index dominated by companies who derive their earnings from within the UK. The FTSE index is around 10% lower than on 23rd June, suggesting that investors have less confidence in those companies. It's completely understandable; why would you hold shares in companies you thought might struggle?
Until our politicians start negotiating our way out of the EU and we have a better idea of the world we're heading to, the Government and the Bank of England will try to reassure the markets, businesses and individuals as the last thing we need now is a slowing economy or worse still, a recession. Already we've seen the Bank of England make more funds available to banks as well as relaxing their capital requirements to free up cash.
So, how does this affect us?
Banks and building societies rely on depositors money to support their lending activities but with a reliable source of low cost money from the Bank of England they don't have to compete for our savings by offering attractive interest rates. That means lower rates for our savings.
What can you do?
- Check the interest rate you're receiving. Is it languishing in an old account?
- Shop around. Banks and building societies charge to lend you money so why would you lend them your money at a low rate? You want a fair return.
- Search comparison sitewww.moneyfacts.co.uk/and you'll soon find out how competitive your interest rate actually is and what alternatives are available.
Comments made last week by Bank of England Governor Mark Carney regarding monetary policy caused shares to spike. That's unsurprising as a more dovish stance from the Bank of England (which could mean a lower interest rate) would be likely to have a positive impact on valuations across the FTSE 350 and among smaller companies too.