A new independent survey of more than 1,000 UK-based investors has revealed their thoughts on the prospect of negative interest rates. It found that 49% of investors believe the introduction of negative interest rates would harm their investments and a further 40% would restructure their portfolio if negative interest rates are announced.
The investment firm FJP Investments commissioned the independent survey of more than 1,000 UK-based investors, all of whom have investments and savings in excess of £10,000, excluding the value of their residential property and workplace pensions.
It found that 49% of investors believe the introduction of negative interest rates would harm their investments. This compares to 12% who feel they would benefit by such an event.
The research also found that 40% of investors would restructure their portfolio if and when negative interest rates are announced. Just 14% said they are confident that they would leave their investment portfolio as it is – and the remaining 46% are unsure how they would manage the change.
What chances UK negative rates in 2021?
The Bank of England announced on Thursday 5th November that interest rates would remain at 0.10% for now. However, it is being speculated that negative interest rates will be announced in 2021 if the rate of economic growth and national productivity continues to slow.
“Investors are clearly worried about the impact negative interest rates could have on their portfolios,” Jamie Johnson, CEO of FJP Investment, said “While the Bank of England is yet to play this card, there remains a great deal of speculation that negative rates could be around the corner.”
FJP Investments thinks that if COVID-19 cases cannot be brought under control and strict lockdown measures remain, the recovery of the UK economy is going to be significantly hindered.
In such a situation, we could expect negative interest rates to come into play sooner rather than later. In any case, investors must start preparing now to avoid any negative repercussions on their portfolios.
But will interest rates really turn negative?
The big question will be whether interest rates really do turn negative next year – professional investors are not so sure. A lot of central banks are in a similar position at the moment, with rates hovering close to zero, and some government debt already on negative yields.
Interest rates rising is seen as the biggest threat next year for 19% of investment trust fund managers polled by the Association of Investment Companies, followed by high equity valuations (14%).
Despite the economic fallout from the pandemic, 90% of managers believe UK interest rates will not turn negative in 2021 according to AIC data, and 71% feel it is either ‘unlikely’ or ‘very unlikely’ that we will see a significant increase in inflation. However, on a three-year view 77% of managers believe a significant increase in inflation is either likely or very likely.