02 November 2023
If you are covering the Bank of England’s decision to hold interest rates at 5.25%, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“As was strongly signalled, the Bank of England today continued its pause on interest rates at 5.25%. While on the surface, this may look good news, it doesn’t mean that financial conditions are easing anytime soon. Data shows that the effective interest rate on outstanding mortgages is at 3.14%, whilst the average quoted rate for new or refinanced mortgages now sits at around 5.5%. With around 30% of mortgages due to be refinanced over the next two years, homeowners are still likely to face a painful upward adjustment of their payments, acting as an ongoing headwind for the UK economy.
“Although the most recent monthly inflation data showed no change to the annual rate of CPI, the British Retail Consortium has indicated that annual shop price inflation dropped more significantly in September, thanks to falling prices for homegrown food which is welcome news for the Monetary Policy Committee as well as hard-pressed consumers. However whilst inflation may be showing signs of slowing, so is the outlook for economic growth with corporate insolvencies now running at the fastest pace since 2009. This makes the Bank of England’s job in guiding the economy through this inflationary period even tougher, particularly with the threat of recession looming in 2024.
“The good news for consumers, however, is that unlike in the US, where a more robust economy has kept the possibility of a further rate rise on the table, in the UK it is more likely that the peak of interest rates has now been reached. For investors, this is a good sign too, as the end of the hiking cycle, and the subsequent cuts, can often bring about very strong returns. While markets may not be shooting the lights out, remaining invested over this period is going to be crucial.”
