The first interest rate cut is now imminent.
Whether it takes place next week, when the Bank of England’s Monetary Policy Committee is scheduled to meet, or over the coming months, UK-listed stocks are set to experience a tailwind from a loosening of monetary policy.
Of course, inflation remains above the central bank’s 2pc target.
Furthermore, the economy expanded by a relatively fast-paced 0.6pc in the first quarter of the year.
But with inflation likely to continue its decline as the full impact of previous interest rate rises are felt, and any future changes to monetary policy set to take many months to have their desired impact on economic growth, policymakers are highly unlikely to maintain Bank Rate at its current level.
Although investors are widely anticipating interest rate cuts to be implemented over the medium term, in Questor’s view they have not yet adequately priced a looser monetary policy into stock market valuations.
Mid and small-cap shares, in particular, currently trade on exceptionally low valuations in some cases.
While, in certain instances, this is justified due to disappointing financial performance among some UK-focused companies, investors do not appear to have factored in the prospect of improved operating conditions that boost profitability.
They also do not seem to have yet anticipated a flow of capital from perceived safer investments, such as cash, to riskier investments, including shares, as interest rates fall and the economy’s performance gathers momentum.
Therefore, Questor remains upbeat about the long-term prospects for small and medium-sized UK companies.
Update: Premier Miton
Fund management firm Premier Miton’s recently released half-year results were somewhat mixed.
While assets under management rose by over 9pc during the six-month period, this was due to the impact of acquisitions and investment performance.
The firm continued to experience net outflows, with them rising to £486m (excluding the impact of acquisitions and disposals) versus £32m in the same period of the prior year, as investor interest in risky assets remained tepid amid a restrictive monetary policy.
