UK Investors Should Prepare for Negative Interest Rates

T. Rowe Price
By January 8, 2021 13:35

UK Investors Should Prepare for Negative Interest Rates

The role of gilts in portfolios could be impacted. Negative interest rates are likely coming to the UK, but you would not know that judging from the markets. Although rates are widely expected to fall, implied policy rates show that the markets do not expect the Bank of England (BoE) to adopt negative rates as a policy tool over the next few years. We believe the markets are wrong, however, and that UK investors need to prepare for the prospect of negative interest rates. The coronavirus has hit the UK economy hard: Once the effects of the second lockdown are factored in, economic growth is on course for the largest annual decline since the Great Frost of 1709. The transition to any new trade agreement with the EU will be disruptive, particularly in the early part of 2021. The UK government has acted to support the economy, but at the cost of a 20% budget deficit—an all‑time high in peacetime.

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T. Rowe Price
By January 8, 2021 13:35

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