Bank of England rate cut: good news and bad news

As ever, there’s good news and bad news about today’s announcement of a 0.25% rate cut from the Bank of England.

Bad news first – the rate cut on 1 August had already been factored in by markets. So in the months leading up to this decision, banks and other financial institutions were already charging you the interest rates (on your spending and borrowing) taking this rate cut into account. In fact, if you recently started the (torturous) process of buying a new home, you might well have seen mortgage rates move in your favour already. So the likelihood is that we might not see a significant change in our day-to-day lives following the decision to cut the rate to 5% - it’s sort of already happened.

The good news, for investors, is that this is another tick in the box for UK asset attractiveness.

It was only last month that the UK underwent its least shocking general election ever. Political stability, check.

Inflation – at more than 8% a year ago – is heading for the 2% target with some speed. At the same time, domestic growth is ticking along nicely, while remaining a long way away from overheating territory. Economic stability, check.

Add in the rate cut decision from the Bank of England – especially including the caveats and caution from the governor in his statements – and we then have around the right amount of monetary loosening too.

So objectively, the UK is looking pretty good. Add into that the relative view (i.e., compare us to everywhere else!) and actually, it’s REALLY good. The European and US political environment is… well… volatile. The Japanese central bank is raising rates. China is facing a growth problem.

And with UK share prices looking quite cheap, it’s no wonder investors are getting interested.