ince last November, the Bank of England has cut its bank rate by 0.25% at every other meeting – effectively each quarter. The cuts have come despite inflation rising from 1.7% in September 2024 to 3.8% ten months later. A final 2025 rate cut (to 3.75%) might still arrive at the end of the year as the Bank has two more rate setting meetings. As ever, the banks and building societies have been quicker to pass on falling rates to their depositors than rising ones. Deposit interest is also likely to be falling, mirroring the bank rate’s downward steps. Where the drop in rates could end is uncertain, but they have already fallen to just 2% for Eurozone countries. The Bank’s steady cutting of short-term interest rates has had much less impact outside the deposit sector, making other income-producing investments relatively more attractive. For example: ■ Sterling fixed interest funds These funds generally hold UK government and/or commercial bonds, which offer attractive yields to investors. In part this reflects the continued high borrowing by the government. For example, the yield on 10-year government bonds (gilts) is now around 4.6%, close to the level last seen in 2008. ■ UK equity income funds Usually one of the higher paying of the major equity markets, the UK average is close to 3.5%, allowing investment managers to design an income portfolio offering yields of 4% and more, while the average d ividend yield on US shares is down near 1%. However, a good rule of thumb is always the higher the yield, the greater the risk. ■ Structured products These are specialist investments that can offer higher income yields than the UK equity or fixed-interest funds but come with potentially greater complexity and risk. TAX-FREE INVESTING Fixed-interest funds, UK equity funds and structured products can all be wrapped within an ISA, taking the income that they generate out of personal tax. To learn more about these and other income options and current yields, please contact us. ✣ The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change. 6 Credit: Credit: anon_tae/Shutterstock.com Where next when investing for income? The Bank of England has cut interest rates three times this year and savers’ rates have followed. INVESTMENT S 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% Source: Bank of England, ONS 2015 Jan 2015 Jul 2016 Jan 2016 Jul 2017 Jan 2017 Jul 2018 Jan 2018 Jul 2019 Jan 2019 Jul 2020 Jan 2020 Jul 2021 Jan 2021 Jul 2022 Jan 2022 Jul 2023 Jan 2023 Jul 2024 Jan 2024 Jul 2025 Jan 2025 Jul CPI Annual In ation Bank of Englad Base Rate INFLATION V BANK BASE RATE JANUARY 2015 – AUGUST 2025
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