Bank of England cuts interest rates, but recent economic and political events signal tougher decisions ahead - LCP
Investment Economy DB pensions
As expected, the Bank of England’s Monetary Policy Committee (MPC) cut base rates today by 0.25%, from 5% to 4.75%.
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.
She added:
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.
