The FTSE 100 and FTSE 250 have risen on the news the Bank of England has cut rates by 25 basis points to 0.25 per cent, while sterling has weakened and gilt yields fell.
The pound peaked today at $1.3346 before the announcement but had fallen 1.36 per cent on the day to $1.3150 after the decision came through at midday, while the 10-year Gilt hit 0.64 per cent – 16 basis points down on the day.
Miners, oil, pharmaceutical, aerospace and defence and consumer staples stocks have already helped the FTSE 100 rally in the six weeks since the UK voted to leave the European Union, and that is only set to continue as the rate cut causes a further weakening in the pound.
The FTSE 100 was up 1.5 per cent after the vote, while the FTSE 250 was up 1.4 per cent.
Banks and insurers are widely expected to be today’s biggest losers as net assets come under pressure at the former and the latter see difficulties covering future liabilities from the poor investment outlook.
Russ Mould, investment director at AJ Bell, says stocks where an economic slowdown had been priced into share prices may be winners from the move as the Bank of England throws all it can at the post-Brexit environment to stave off recession.
“Names to watch here include ITV and Sky. Housebuilders and property stocks may also bounce in the view the Bank of England is pro-actively trying to stave off a possible downturn,” he says.
Both ITV and Sky rose largely in line with the index up 1.5 per cent and 1.7 per cent respectively.
Stocks that can deliver dividends – covered by earnings and cashflow – are also set to benefit as bond yields reduce, Mould says.
“Potential names to watch include Relx, BAE Systems, Sky and BAT as well as utilities, such as SSE and National Grid. They may not offer the highest yields but they offer well-covered ones which should prove reliable,” he says.
British American Tobacco and National Grid both rose 2 per cent after the announcement.
Retailers face a mixed bag, Mould says. On the one hand lower rates could stimulate more consumer spending, but it is also set to drive up costs. Next’s stock price was down 1.7 per cent, despite the retailer reassuring investors it had felt little impact from the EU referendum when it released its half yearly results yesterday.
Savers are set to be particularly hard hit with banks already cutting interest rates on cash in the lead up to today’s announcement.
Calum Bennie, savings expert at Scottish Friendly, says investors will move into stocks and shares ISAs to access the returns they used to expect from their current account.
“Any false sense of security around the outlook for savers post-Brexit has now been removed,” Bennie says. “It’s particularly ironic that this move is most likely to affect the cash savings of the over 60s, the demographic that were among the most in favour of leaving the EU.”
The FTSE All Share tracker is currently returning 3 per cent, The Share Centre says, and could be an attractive alternative for investors willing to put their capital at risk. It warns of the risk associated with a FTSE 100 tracker, which is overly concentrated in mining, banking and oil and gas sectors.
Richard Clarke, head of investment management at KPMG UK, says the “small cut” will reinforce the importance of asset management as the British public struggle to make returns.
“Asset managers will need to work hard to help their clients deploy their cash in a way which achieves their targeted returns without creating too much additional risk.”
A survey of 2,000 savers by True Potential Investors found 27 per cent would respond to an interest rate cut by looking at investments as an alternative to cash.