Base rate held as Quantitative Easing continues - how should you position your investments to benefit

Published on 19th November 2009

According to the latest batch of economic statistics the UK remains stubbornly in recession. The Bank of England is throwing everything possible at the problem with a further £25bn having been earmarked for Quantitative Easing, whilst base rate remains frozen at 0.5% for the eighth consecutive month.

With much of the rest of the World seeing positive growth , the UK seems firmly stuck in a rut. The Monetary Policy Committee (MPC) of the Bank of England is trying to force feed the money markets in an attempt to lift the chains off of the UK economy created by the lack of bank lending to UK business.

This months £25bn of Quantitative Easing takes the total spend to £200bn and with analysts predicting that inflation could begin to rise in 2010 as a result of this massive increase in the money supply, the Bank must engage in an extremely finely tuned balancing act. Interest rates are the traditional weapon against inflation but still remain at historically low levels whilst demand in the economy is so sluggish. Low interest rates are necessary because reduced mortgage payments are feeding through to some signs of increased spending on the high street yet any sign of an inflationary spike could force the MPCs hands and see rates increase again.

What should you do with your investments?

It remain likely that the Banks efforts will help to bring the UK out of the recession in time for the next quarters results due out in the New Year but the message to investors is that now, more than ever, investments must be positioned across many asset classes to protect capital and exploit any potential for gain.

Too large an emphasis on fixed interest corporate and government bonds could prove disastrous should inflation rears its head and so now may be the time to discuss moving cash and fixed interest into booming equity markets and possibly even commercial property. Increasingly we are moving client monies into environments that benefit from some degree of discretionary management rather than simply pick individual funds at outset and rely on these choices to be suitable for many years to come.

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