How does a Bank of England base rate cut help small caps?
With the Bank of England cutting their base rate for the first time in over 4 years; how does a Bank of England base rate cut help small caps?
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1. Lower Borrowing Costs: When the base rate is cut, it generally leads to lower interest rates on borrowing. This makes it cheaper for small-cap companies to borrow money for expansion, operations, or other investments. This can lead to increased productivity, job creation and growth more generally. It also makes it cheaper for consumers and other businesses encouraging spending and investment.
2. Increased Consumer Spending: Lower interest rates can boost consumer spending as people have more disposable income due to lower mortgage and loan payments. This can increase demand for products and services offered by small-cap companies, increasing demand and helping businesses grow.
3. Improved Investor Sentiment: Lower interest rates can make equities more attractive compared to fixed-income investments like bonds or savings accounts that are attractive when interest rates are high. This can lead to increased investment in small-cap stocks, driving up their share price.
4. Improved Confidence: A rate cut can signal that the Bank of England is taking action to support the economy, which can boost confidence among consumers and businesses. This increased confidence can further stimulate spending and investment.
5. Weaker Currency: Lower interest rates can lead to a depreciation of the national currency, making exports cheaper and more competitive internationally. This can boost export-driven growth. The Fundamental Asset Management AIM portfolios have many exporters who do well when sterling is weaker.
The latest Fundamental Asset Management webinar also covers the impact of falling interest rates on small caps. You can watch it by clicking here.
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To find out more about the benefits of AIM, please speak to our Business Development Manager, Jonathan Bramall, via email [email protected] or phone 01923 713 894.
