Richard Whitehall, Head of Portfolio Management at Aegon comments: “It’s unsurprising that the Bank of England has opted to keep the interest rate unchanged at 0.1% today and held off further increasing its quantitative easing programme. As economies have started to ‘reopen’ we’ve seen glimpses of recovery, but with unemployment rising to its highest levels for two years this will naturally lead to consumers adopting a more cautious attitude, limiting the strength of the recovery.
“Looking ahead, with the government’s furlough scheme winding up at the end of next month, we are likely to see the true picture of unemployment and the economic scars from coronavirus further emerge in the last quarter of the year. Yesterday we saw inflation fall to a five-year low of 0.2% and if demand doesn’t return there is a risk of deflation and this coupled with continuing uncertainty will likely result in ultra-low, and even potentially negative, interest rates.
“From an investment perspective we believe the UK equity market is currently undervalued, with the expectation of a muted economic environment and Brexit-related disruption already more than priced in. Therefore, we remain with a preference for the UK in our own investment portfolios, compared to equity markets such as the US where we believe high prices aren’t fully justified by the underlying fundamentals.
“For investors, they should reflect on their long-term financial goals and ensure that their portfolio is positioned at the right level of risk to help meet those, rather than worrying about the next few months. Adopting a longer-term view and not being too influenced by what markets are doing today is crucial.”
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