3 August 2023
If you are covering the latest decision by the Bank of England to raise interest rates by a quarter of a percentage point, please find below a comment from Marcus Brookes, chief investment officer at Quilter Investors:
“Having taken more drastic action at its last decision, the Bank of England has today settled for a quarter of a percentage point rise in interest rates to 5.25% - the highest level since April 2008 when the world was gripped in the financial crisis. Even with inflation coming down faster than forecast recently, this may not be the end of the BoE’s action. Yes, the interest rate rises we have seen to date are beginning to have an effect, but it is not certain that it is enough yet to get inflation back to the 2% target the BoE operates to. As such, we may need to expect another rise later this year.
“That said, interest rates probably don’t have to go as high as the market is predicting, currently somewhere above 6%. The UK economy and consumer has been incredibly resilient but are clearly now beginning to be hit. Inflation is falling and should continue to do so for the rest of the year, even if not to that magic 2% number. The next few sets of inflation data will be crucial to see just what impact the BoE has managed to have and what is still likely to come.
“The BoE is walking a tightrope at this stage, where the interest rate rises we have seen could tip the UK economy into recession. The BoE will want to avoid that but may have no choice in order to tame inflation. The US is looking increasingly likely that it could achieve a soft landing by keeping economic growth ticking along as inflation comes down. The UK has no such luxury, and as such should a recession become more likely then we will see how long the line that rates will stay this high for an extended period of time can hold.”
