The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
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Let's not get too worked up about interest rates. The BoE inflation target is 2% and the current rate is 0.7%. The BoE is not required to explain its actions unless it misses that target by more than 1%. It has already written to the Chancellor explaining why we are below the target inflation rate. Given the above and our economic circumstances AND the terrifying impact on the cost of UK government borrowing if interest rates go up by any meaningful amount, I think the chances of an increase any time soon are minimal. Andy Haldane, by the way, is consistently the most hawkish member of the Bank's Monetary Policy Committee so his views do not necessarily reflect the majority.
Finally, a number of economic commentators of all persuasions seem to think that there will be an inflation blip as we surge out of lock-down which will then reduce again as the capacity that has developed during lockdown emerges. You can read pretty much the same thing in the Telegraph, Economist and Guardian.
GS
In recent weeks interest rates and bond yields over the pond have started to push up very sharply. This site is good for macro and they tend to be ahead of the curve, obviously US-facing but markets on this side of the Atlantic usually tend to follow.
https://www.realvision.com/shows/daily-briefing/videos/will-rising-interest-rates-change-the-game?utm_campaign=2021226_alert_briefing_leads_combo_1_standard&utm_medium=email&_hsmi=113181709&_hsenc=p2ANqtz-8MyEE6siAMwRNItvXAxz8jc39qxC5GBBElN33CyBU3k_Tm4fHE9US3Y0pUi1abMMgfSmz6FgLoRGtIp3dRviAi6pCu6zr_czDushcEaXWM5Cqcgi8&utm_source=leads_combo
It is worth noting that the BOE seems to have gone quiet on negative interest rates, while one member of the MPC, Andy Haldane, gave a speech the other day to warn against inflationary pressures in the economy. When one is close to price stability and zero borrowing costs, it actually would not take much in the way of price rises to affect interest rates.
I thought they'd been taking about negative interest rates.................that being said I'm expecting some big gains on the digital side come the results on Monday and there going to be a lot of people out there wishing they'd have bought in this week or topped up . I suspect a bounce around Wednesday after news breaking and sharing their predictions on SP growth . I still think there might be Divi 1.5 p or further Bonus shares either will suit me , the only way is upwards now we'll be up against last s years figure from the start of the Pandemic . Happy days ahead 3.90 by Sept may be sooner ,but happy to hold now. GL
GS: Thanks, that is tremendous, given the talk of higher inflation leading to higher interest rates. Very positive for companies carrying pension liabilities.
I ask about Rothesay Life because a friend of mine is in the former GEC Pension Scheme and they have just transferred the scheme wholesale over to Rothesay, on equivalent benefits in every way. I have looked up Rothesay and they seem to be very solvent and open to expanding in this way. Mind you, the trustees of the GEC Plan seem to have done a very good job and had eliminated the deficit on the scheme. Still, it might be something that RCH could look at in the future.
Thanks once more, have a good weekend.
@jane - Can't answer your second question, but https://www.marketwatch.com/story/low-interest-rates-are-compounding-the-big-problems-facing-pension-funds-2019-08-30 is US centric but in it, Millman (an actuarial firm) suggests a change of 8-15% in liabilities for every 1% move in interest rates.
There is a reported pension scheme deficit of around £200m. Usually, higher interest rates are beneficial to reducing deficits because the discounting rate increases, thus reducing the NPV. Does anyone have any idea of the resulting benefit to RCH for moves up in interest rates of, say, 0.5%, 1% and so on?
Another point is whether RCH has given thought to shifting the pension scheme wholesale to a private assurance provider specialised in pensions such as Rothesay Life. Does anyone have thoughts on this?
Many thanks.