As markets brace for the first cut to interest rates since 2020, investors are finding opportunities across a range of British companies.
Whether the cut happens on Thursday or in September, experts say that bar an unforeseen event or crisis, a reduction from the current base rate of 5.25pc looks like a foregone conclusion. Inflation has fallen from its peak of 11pc in October 2022 to hit the Bank of England’s 2pc target in May.
Another cut is widely expected before the end of the year, which could have profound implications for consumers and businesses. For example, some companies directly benefit from paying less interest on their debt, while others profit from their customers having more cash in the bank as mortgage rates come down.
Finally, lower interest rates provide a boost to the valuations of certain companies, such as those that are prized not for their profits today but the prospects of their future earnings. These are worth more if inflation and rates are expected to fall.
So, which stocks stand to benefit? Here are five to consider.
Consumer confidence
Unilever is one consumer-facing business that should in theory profit from Britons feeling more willing and able to spend.
Alan Dobbie, a fund manager at Rathbones Asset Management, says the owner of the Dove and Hellmann’s brands should perform better if rates fall. This is because Unilever’s reliable dividend competes with the stable income paid out by bonds.
When interest rates drop, typically bond yields also fall (as the two are highly correlated), so the stock’s stable, growing revenues and regular dividend become even more attractive to investors.
Mr Dobbie also feels positive about the new management team’s strategy, which focuses on doing fewer things better. This explains the company’s decision to spin off its ice cream unit, which includes Ben & Jerry’s.
He says: “They are making pretty big, bold moves. As a result, there has been a big increase in the number of analysts upgrading the stock in recent months.”