Interest Rate Shift in the UK: Opportunities for Investors

Investors are currently focusing on British companies as the market anticipates the first interest rate cut since 2020. Whether this cut will occur on Thursday or in September remains to be seen. However, experts are convinced that a reduction of the current base rate of 5.25% is practically certain, provided no unexpected events or crises occur. Since the inflation peak of 11% in October 2022, the Bank of England's 2% inflation target was reached in May. Another interest rate cut is expected by the end of the year and could have profound effects on consumers and businesses. Lower interest rates would not only reduce the interest burden for many companies but also stimulate consumption as mortgage rates decrease and consumers have more disposable income. Additionally, certain companies could gain value as their future profit prospects become more attractive with falling inflation and interest rates. Which stocks could benefit from this? Here are five companies that should be closely examined. Unilever could benefit from increased consumer spending as a consumer-oriented company. Alan Dobbie of Rathbones Asset Management anticipates positive outcomes from the new corporate strategy focused on concentration and efficiency. The plan to spin off the ice cream division is an example of this approach. Analysts have accordingly adjusted their valuations in recent months. Utility companies could also become more attractive to investors if interest rates decline. National Grid, responsible for the UK's electricity and gas network, offers a combination of defensive revenue sources, an attractive growth profile, and an inflation-linked dividend of nearly 6%. Lower interest rates would further reduce interest costs for the highly indebted company. The real estate sector would also benefit from lower interest rates. Homebuilders like Bellway are in focus as the government plans to build 1.5 million new homes over the next five years. Bellway offers an interesting dividend yield of 3.9% and recently secured its land bank in the south through the acquisition of Crest Nicholson. Suppliers of building materials and DIY stores could also benefit from increased construction activity. Indriatti van Hien of Henderson Smaller Companies Investment Trust sees potential for companies like the DIY giant Wickes, which could gain from improved consumer sentiment and lower mortgage rates. Wickes is also undervalued relative to the strength of its balance sheet and is gaining market share. Finally, investment platforms and wealth management companies could benefit from shifted savings habits. Jonathan Brown of Invesco highlights AJ Bell, which could profit from higher consumer investments. The growing asset base on the platform would additionally generate higher fee income.