21 September 2023
If you are covering the Bank of England’s decision to hold interest rates at 5.25%, please find below a comment from Marcus Brookes, Chief Investment Officer at Quilter Investors:
“While it may return to raising rates later in the year or into next year, the Bank of England has been bold and is signalling that its job is nearly done for now. Inflation surprised to the downside yesterday and with economic data rolling over, the BoE clearly feels it now has enough cover to hit the pause button and assess things as we go. Market expectations of rates at or above 6% always appeared a little toppy, and clearly the data is trending in the right direction for the BoE to take this decision. With an election around the corner next year, it will be playing on the minds of the decision makers not to overcorrect and instead begin to assess what impact the action to date has had.
“Andrew Bailey and the rest of the Monetary Policy Committee will also be looking closely at the US, where the Federal Reserve hit the pause button on interest rates. Sentiment across the pond remains hawkish though, with one more rate rise expected this year. Clearly that economy is in a much stronger position so can probably take another rate rise, but they are looking to reach the end of the hiking cycle and the Bank of England will not want to diverge too greatly from a key economic power. As such, we wouldn’t be surprised to see the BoE begin to mirror the Fed once again.
“However, while this may be the end of the interest rate hiking cycle, this doesn’t mean the pain will simply go away for businesses and consumers. The BoE has made it clear that rates will be higher for longer, so investors need to prepare accordingly. Quality companies, with stable and sustainable cashflows will ultimately benefit most from a period of rates being above 5%, and as such now is a time to hold the nerve and not try to time any cut in rates, as these are a long way off for now.”
