22 September 2022
If you are covering the Bank of England’s decision to raise interest rates by 0.50% to 2.25%, please find below a comment from Hinesh Patel, portfolio manager at Quilter Investors:
“Today’s move by the Bank of England to increase interest rates by 0.50% for the second month in a row is also the sixth consecutive rise as the Bank continues to attempt to beat back the flames of inflation and shore up the soggy pound.
“Markets were expecting a larger 0.75% increase, following the same increase yesterday by the Federal Reserve which pushed sterling to its weakest against the dollar since 1985. The Bank of England continues to be on the back-foot and playing catch up with the Fed, and at 2.25% UK rates lag the 3-3.25% range in the States.
“The BoE also missed an earlier window of opportunity to, at the very least, dampen the impact on sterling. Instead, the Bank is now in a quandary of how to set policy rates with fiscal uncertainty and a ratcheting up of government borrowing. The Reaganesque policies being pitched by the new cabinet may boost growth, but in our opinion will add to core inflationary pressures in the medium term.
“This comes at a time when the net supply of Gilts to the market is being exacerbated by accelerating quantitative tightening. In the near-term, however, money trends suggest the inflationary pulse is in the rear-view mirror. Coupled with the hit to business confidence and consumer spending power this year, we expect the Bank will be hiking into a rapidly deteriorating, but not disastrous, environment.
“For investors, this has now produced one of the most prospectively attractive set-ups for fixed income assets in at least a decade.”
