New governor makes his mark

Account executive Brad Waring of James Brearley and Sons
Account executive Brad Waring of James Brearley and Sons
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The new Bank of England governor, Mark Carney, in his first week has already made his mark.

The Monetary Policy Committee, which carries out its usual announcement on interest-rate setting decision changes at the beginning of each month, included a new angle on this occasion.

This time it included a statement announcing that the Bank saw little likelihood of any significant changes in base rates happening in the next couple of years.

Although little of substance actually changed with the announcement, the statement was interpreted by many market commentators as a sign that base rates for lending were unlikely to rise in the UK as quickly as markets had been expecting.

Gilt and Equity markets reacted positively to the news. Another interpretation of this by investors was that interest rates were likely to remain below the rate of inflation for some time ahead, so meaning that cash will continue to offer a negative real return.

In an effort to find a more profitable use for monies earmarked for this asset class, many investors purchased equities with cash. As a result, the FTSE 100 index rose more than 2.5 per cent last week.

As would be expected with such news, the pound fell against the dollar. The weaker pound though should help exports from British companies.

Further, as many of our largest UK companies report in US dollars, this should help to boost dividend payments in sterling.

It appears that for equity investors who have done well in the recent past by favouring the consumer goods and defensive sectors, that the foundations remain unchanged for these areas good run to continue.

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