20 June 2024
If you are covering the Bank of England’s latest interest rate decision, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“Though inflation hitting 2% marked a significant milestone, it is simply not enough to allow the Bank of England to declare job done. Instead, the monetary policy committee has opted to leave interest rates unchanged once more.
“While it will come as a bitter blow to the Conservative party, this decision is no real surprise given month-on-month figures suggest inflation is unlikely to remain at 2% for long. It is instead expected to rise again later this year and ultimately settle between 2% and 3%. The Bank will be keeping a keen eye on wage growth, which remains around 6%, as well as services inflation which has been taking its time in coming down and has continued to feed into elevated core inflation. With the Labour Force Participation Rate still trending down and at the lowest level since 2015, a worker shortage is one crucial inflationary factor that will need addressing by the incoming government. Given the Bank’s focus on sustainably returning inflation to the target in the medium term, it could be some time yet before we see a cut.
“Until recently, markets had been pricing in several BoE rate cuts this year, with the first previously expected in the summer. Given the hesitation around inflation, it is looking increasingly likely that the first cut will not materialise until November which means we could see just one or two cuts from the BoE this year after all. This would put the BoE roughly in alignment with the Federal Reserve, which now expects to make just one rate cut this year, and trailing behind the European Central Bank which has already fired the starting gun.
“Though the headline rate of inflation has lowered, various areas of the economy are still seeing prices rising at a faster rate than the 2% target. What’s more, the high cost of living is still biting, meaning households are unlikely to be feeling any better off. With interest rates unlikely to fall for some time yet, and the prospect of lower rates later in the year so far having little impact on mortgage rates and long-term debt agreements, consumers and businesses will continue to carry the burden.”
