Two-thirds of investors fear negative interest rates
UK investors fear the prospect of negative interest rates and are unsure of their consequences, new research commissioned by HYCM has found.
More than 900 UK-based investors, all of whom have investments in excess of GBP10,000, excluding the value of their residential property and workplace pensions, were surveyed on behalf of the trading broker.
According to the research, 64 per cent of investors said they are concerned by the prospect of negative interest rates being introduced by the Bank of England in 2021. What’s more, over half (55 per cent) are none the wiser when it comes to understanding how negative interest rates would affect their financial portfolios.
The Bank of England’s Monetary Policy Committee (MPC) is next due to meet on Thursday 4 February. While negative interest rates are not likely to be announced, recent comments from members of the MPC suggest negative interest rates could be introduced in 2021 to help boost economic growth.
When it comes to investor confidence, 50 per cent of investors are optimistic that the financial markets will fully recover this year from the disruption caused by Covid-19. Over half (54 per cent) said they are making short-term financial decisions due to market uncertainty caused by the pandemic.
Giles Coghlan, Chief Currency Analyst at HYCM, says: “More clarity is needed as to whether the Bank of England will need to use negative interest rates, especially now there has been a positive Brexit deal for the UK at the start of 2021.
“For now, we know that Governor Andrew Bailey wants negative interest rates to remain part of the Bank’s ‘tool kit’. Whether they will be deployed is another matter.
“Should investors be worried? My short answer is no. Yes, negative rates could affect rates linked to mortgages, credit cards and personal loans. However, retail investors should not expect to pay interest on the cash they are holding in bank savings accounts as this has not happened in Switzerland which currently have negative interest rates of -0.75 per cent.’
“I’m more interested to see how the pound and FTSE could react to such an announcement and whether this might lead to new investment opportunities. Certainly, a walking back from the use of negative interest rates creates opportunities for short term GBP strength at the very least.”