4 August 2022
If you are covering the Bank of England’s decision to raise interest rates by 0.5%, please find below a comment from Paul Craig, portfolio manager at Quilter Investors:
“The Bank of England has clearly decided that now is the right time to bring out more firepower and raise rates by 0.5% for the first time since 1995. It has clearly taken note of what the Federal Reserve is doing in the US and feels it could be running out of time to grapple inflation and get it under control.
“In the back of the mind of policy makers will be the current public mood. Sentiment is shifting against the Bank of England with a recent survey pointing to more people being dissatisfied with the job it is doing than satisfied people. Clearly inflation has been stickier than expected, but the BoE has been slow to act, preferring instead to raise rates incrementally. That time is now gone, especially with concerns inflation will peak at 12%.
“The other significant shift from the BoE in recent weeks was the dropping of mortgage affordability rules. With the economic picture looking incredibly challenging, and mortgage rates subsequently rising off the back of the BoE’s moves, the decision to drop those rules is looking more and more circumspect by the day. There is a concern the lessons of 2008 are beginning to be forgotten.
“The BoE will feel justified to be this aggressive given the strength of the jobs market, but the data is beginning to roll over. Jobs growth is weakening, PMIs are beginning to show businesses seeing slowdowns, while consumer savings are being depleted. This may be a silver lining for the BoE as with that inflation itself should begin to fall, but with the new energy price cap only a matter of months away, it won’t be long until rate cuts are back on the table to deal with sluggish and potentially negative economic growth.”
