The Bank of England's Monetary Policy Committee (MPC) assembled on Threadneedle St last week to update the market on interest rate trends.
As always, the event was less about the headline decision—rates held at 5.25%, shock—than the commentary that surrounded it.
The Bank is forecasting inflation to come down to 1.9% in two years and 1.6% in three years. A key takeaway was Governor Andrew Bailey expressing optimism and even suggesting:
“Rates could come down faster than market expectations.”
What we tend to then hear from clients (particularly those with mortgages!) is:
“If inflation is falling and is forecast to drop to below the 2% target, why ‘hold’…. what are they waiting for?!”
Good question!
If, like me, you’ve found yourself scanning the internet for a place in the world that has more than 48 hours of nice weather, you’ll have part of the answer…
There are reasons to feel optimistic about the economy, and with prices slowly going down, it’s easy to forget that some pockets of the inflation basket have been more stubborn than anticipated.
Despite being a distant memory, the pandemic squeezed a large number of businesses, many of which sit within the services sector (including travel!).
With this sector trying to meet its needs, prices have increased by almost 30% since Covid-19. And the Bank said there are still some signs of inflation persistence, with services inflation at 5% in March.
As the Monetary Policy Committee grapples with when to stick or twist, it’s worth keeping in mind your summer holidays. Even though travel restrictions are no longer a problem, we can only do so (literally) at the expense of a four-year-old foe!
Stock markets have moved forward again over the past week, with the Dow Jones touching an intra-day high of 40,000 yesterday, suggesting that the first interest rate cuts are expected sooner rather than later.
I hope you found the above interesting. As always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.
Yours sincerely,
Graham Ponting CFP Chartered MCSI
Managing Partner
