UBS expect UK interest rate to be cut to 0.1% in Nov, FTSE 100 to remain strong


John Wraith, head of UK Rates Strategy at UBS has revealed that he expects UK interest rates to be cut to 0.1% in November, but the FTSE 100 will remain in a strong position due to overseas sales:

“The MPC has acted decisively to counter what it perceives to be a very material drop in domestic demand following the EU referendum. Bank Rate has been halved to 0.25% and the Committee has voted to restart QE through the injection over six months of £60bn of newly created reserves into the conventional Gilt market, and up to £10bn in corporate bonds. We expect a further cut to 0.10% in Bank Rate in November.”

Wraith also touched upon the outlook for the corporate bond, equities and FX markets whereby he specifically expressed his positive outlook for the FTSE 100:

“We expect corporate bonds to remain well bid, with spread compression in the near term also providing a potential boost to the primary pipeline. In equities, despite the deceleration in UK growth we do not see a significant drag to the FTSE-100 given 75% of revenues come from outside the UK. In FX, we feel comfortable with year-end targets of 0.90 for EUR/GBP and 1.29 for GBP/USD. The path for sterling is also dependent on political considerations, including the timing of the triggering of Article 50, and the evolution of economic data, but the balance of risks is for further weakness.”

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