Interest Rates – June 2014

We would stress the views opined are those of Edward Collins and Jonathan Arthur.

The subject of interest rate rises and their timing has become an important issue at the Hanson Asset Management weekly markets meeting. As a result we have set out our views for the three main markets, namely UK, USA and the Euro Zone. Generally, the environment is highly fiscally accommodative with low interest rates and central banks taking measures to increase liquidity. Low interest rates have encouraged people to spend rather than save, to invest in assets that would be revalued as money was devalued, banks to lend and to encourage investment by companies. To an extent this has worked, but the biggest impact has been made by Quantitative Easing (QE) where billions of pounds, dollars and yen have effectively been printed to keep the wheels of commerce oiled and to stop the economy from slipping into a deflationary spiral. The other impact of lower interest rates is to assist in devaluing a currency so that products are cheaper for foreign buyers. This, together with QE which by printing money also devalues it, has helped enormously with the economic recoveries in Britain and America over the last few years, it is too early to conclude on its effect in Japan, while Europe has set out on a different path.

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