Interest Rates Unlikely to Be Cut Before the Summer of 2019



Posted on: 20th December 2016

The head of investment at Woodford Investment Management has stated that he does not believe interest rates will be increased while Mark Carney holds the position of governor of the Bank of England. Neil Woodford talked of central banks still getting a feel for the current economy, making it unlikely that a change in interest rates would emerge soon.

His comments came at AJ Bell’s ‘Investival’, where he discussed the way in which the current market environment is giving very limited power and scope to central bankers.

“It is important to have central banks but the problem is they are all in a dark room looking for a black cat that is not even there. They are feeling their way around an economy where there is no rulebook,” he told those in attendance.

“Post-Brexit, Carney’s policy initiatives have helped the economy and helped to calm markets but he has a limited hand. Carney will never raise interest rates.”

In terms of timeframes, this would mean that Woodford does not see any changes in interest rates happening until at least the summer of 2019. Carney previously having confirmed that he would hold onto his tenure at the Bank of England until June 2019. Interest rates in the United States are slated to rise in December, though here in the United Kingdom were slashed to a record-low 0.25% over the summer.

Mr Woodford also took the opportunity to talk about bank equities, which despite being flagged as undervalued by many apparently do not appeal to him.

“I am not as bullish as some on the transformation of the banking sector. Things will be better and UK banks seem to be prepared but it remains very difficult for banks to earn attractive returns,” he said.

“I expect them to trade at or at a discount to NAV as I doubt if they can sustain their returns. They look, to me, an unappealing investment.”

His address also included comments directed at those who overlooked the pharmaceutical industry, in the run-to the presidential election and its surprising climax. Prior to the vote, healthcare stocks were sent into a downward spiral following Hillary Clinton’s comments on bringing down drug prices nationwide.

“Healthcare stocks have been dreadful on the back of an expected Clinton victory so there has been an element of relief with a Trump victory. I remain as optimistic as I was before the election. Trump has said he would repeal Obamacare but I do not think he will be able to do that,” Woodford said.

“UK pharma is a pariah but that is a big mistake. The most attractive valuation opportunities that we see are in early-stage science companies and I am spending more and more time looking at that.”

Low interest rates are expected to continue having a positive effect on consumer borrowing in the United Kingdom for the foreseeable future at least. On the downside, savers chasing decent returns by way of conventional savings accounts are finding available options thin on the ground to say the least.