22 June 2023
If you are covering the Bank of England’s decision to raise interest rates by 50bps, please find below a comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“Following yesterday’s shock inflation reading, it has clearly spooked the Bank of England into taking more drastic action than predicted with a 50bps increase in interest rates. Until inflation begins coming down to more palatable levels the Bank of England will continue to put the brakes on the economy and as such the UK once again finds itself staring down the barrel of interest rate rises and economic strife.
“It is perhaps becoming clearer that due to the UK’s more unique set of economic circumstances, recession may be the only option to bring inflation down. While the UK avoided recession at the turn of the year, it does not mean one is not lurking further down the tracks. Clearly interest rates are a blunt tool and are failing to have the desired effect in dampening demand but the BoE will keep using them. The problem the BoE faces is much of this inflation has been driven on the supply side so it is not clear exactly what else the Bank of England can do. We are ultimately stuck in a sort of holding pattern waiting for the data to improve.
“Ultimately, this journey to more normal monetary conditions is going to take much longer than planned and this will unfortunately have consequences for the likes of mortgage holders. Subsequent rate rises are going to stoke these fears further and talk of recession is likely to start honing back into view later on this year.”
