Investors and savers should prepare for an environment of sub-zero interest rates, according to M&G’s Richard Woolnough.
He is reported as saying that interest rates below zero are now a real possibility in G7 nations, including the UK.
Describing the “potential for a major investment climate change”, the fixed interest fund manager highlighted the failure of low interest rates and quantitative easing to ensure economic prosperity, suggesting now could be the time that central banks experiment with sub-zero interest rates.
Sub-zero interest rates would clearly be bad news for savers.
With a negative return on savings, greater levels of consumption would be encouraged which should help the economy to grow. There would also be little incentive to repay debts, assuming further interest rate cuts were passed on to borrowers by their banks.
We already know that the Bank of England would consider an interest rate cut should their Funding for Lending scheme fail to get the desired results.
In a sub-zero interest rate environment, investors would need to adjust their expectations for returns. We also believe that charges on investment funds would come under increasing pressure, as the margins available from investment returns would be even lower.
It will be interesting to see if this prediction becomes reality, possibly as early as this Thursday at the next meeting of the Bank of England Monetary Policy Committee.
Photo credit: Flickr/TheLugash
