September was the 18th consecutive month that the UK bank rate has stayed at a record low of 0.5 per cent and this is likely to remain the case for some time.
This is not great news for savers who have traditionally relied on the interest from bank and building society deposits to supplement their income, with deposit rates remaining well below inflation. It may have been the plummeting equity, property and parts of the corporate bond markets that made all the headlines during the financial crisis but the crash of cash was perhaps the most significant financial event of the last couple of years.
Fortunately, there are still plenty of areas where it is possible to generate a decent income and no more so than equities, where in the UK (and some other markets), shares now yield more than government bonds. The UK equity income sector has been through a pretty torrid time itself over the last few years as a result of the banking crisis which resulted in the cutting or scrapping of dividends in that sector, followed by the disaster in the Gulf of Mexico which culminated in BP (the UK’s biggest income producer) having to suspend dividend payments.
However, the future looks much brighter for the sector, with analysts expecting BP to reinstate its dividend next year and while it will be some time before we see an increase in bank payouts, the recent results from some of the worst affected lenders have been very encouraging.
eanwhile, there are many defensive sectors of the market such as pharmaceuticals, telecoms, utilities and tobacco which continue to provide a high and, in most cases, rising income and we expect these sectors to perform well in what is likely to be a low-growth environment for many years to come.
For those who have been put off investing in direct equities (and understandably there are many who have) there are always multi-asset funds that provide income from numerous sources with the flexibility to make significant changes in asset allocation when appropriate. Within the Premier multi-asset distribution fund, we have a bias towards equities but are also finding interesting opportunities in closed-ended commercial property funds and corporate bonds where we continue to favour those funds with a decent exposure to financials and asset-backed securities.
David Hambridge is investment director pooled funds at Premier