Cascade Commentary

11 March 2020

The Bank of England’s Monetary Policy Committee (MPC) has cut interest rates to 0.25% to help UK businesses and households manage the economic implications of the COVID-19 outbreak following an emergency meeting held 10^th March 2020. The MPC voted unanimously to reduce the base rate alongside accompanying monetary measures to provide additional support, particularly to Small and Medium-sized Enterprises (SMEs) with the announced TFSME scheme to improve the availability of finance. These measures follow a marked spread in the transmission of Covid-19 around the world which, coupled with an oil price war between Saudi Arabia and Russia, has seen markets drop substantially over a short time frame.

Mid-February 2020 the FTSE 100 traded at 7,547 points but less than one month later, the UK’s leading market index had fallen by over 20% to 5,993 amid fears that the escalating health crisis could evolve into a credit crisis as global firms face significant impacts in both the sale and production of goods and services worldwide. The outbreak of Covid-19 in China has impacted international supply chains dependent on exports from the factory of the world, while travel bans and preventative measures have begun to impact international travel too. More than £200bn has been wiped off the UK’s global FTSE 100 index as a result and it is expected that governments worldwide will seek to invoke fiscal stimulus too in order to counter a potential global recession.

Goldman Sachs earlier this week warned that the virus could push the UK towards recession and the incoming Bank of England Governor, Andrew Bailey, affirmed the need to act swiftly to limit the impact. Adjusting interest rates is simple and effective and thus markets correctly anticipated the action taken by the MPC at yesterday’s meeting. 

Accompanying this expected monetary support, fiscal flexibility is expected from Chancellor Rishi Sunak in his budget to be announced later this morning. Sunak has stressed the importance of fiscal responsibility to fight the effects of Covid-19, particularly on SMEs who may face temporary cash flow issues as a result of the emerging outbreak. Measures such as permitting a “time to pay” forbearance on tax bills are expected to help forge a pathway for businesses that may experience temporary difficulty.

While a fall in the base rate is positive for borrowers, savings rates are unfortunately once again heading downwards. Since the start of the year, many providers have already priced in a reduction of 0.25% as many expected following the signed withdrawal of the UK from the EU on 31^st January 2020 that the base rate would reduce from 0.75% to 0.50%. For example, Cambridge & Counties Bank reduced the rate on their 120 Day Business Notice account from 1.75% to 1.50% effective 31^st March 2020 while the NS&I announced a reduction in their Income Bond rate from 1.16% to 0.70%, effective from 1^st May 2020. The accompanying Covid-19 outbreak has unexpectedly increased market volatility and therefore it is expected that rates will drop further over the coming weeks.

As of today, the best instant access rate for a Personal saver is 1.35% available from Chelsea Building Society, while for Business and Charity savers, Saffron Building Society leads the market paying 1.06% for deposits between £10,000 and £500,000. In the fixed term market, challenger bank Masthaven leads the 1 year Fixed Term rates for Businesses paying 1.71% while sharia compliant bank BLME tops the Personal rates with its Premier Deposit Account paying 1.65% for a 1 year Fixed Term.

We’ll be paying close attention to how rates move over the course of the next few weeks and months. Ensuring safety of cash at these times becomes paramount and spreading capital across different banking licences helps to obtain depositor protection cover under the Financial Services Compensation Scheme. For those who would like to know more, please give us a call on 0191 4813777 or submit an enquiry via our website on www.cascade.co.uk.