As the Bank of England prepares to announce its latest interest rate decision tomorrow, investment professionals are weighing the implications for portfolios in a period of sticky inflation, concerns about growth and the health of the UK economy and ongoing geopolitical uncertainty. With the market largely expecting a hold at 3.75%, the focus will be on the tone of the Bank’s guidance and how it signals the path for future rate adjustments.
Below, Jeremy Batstone-Carr of Raymond James, Charlie Ambler of Saltus and Peter Goves of MFS Investment Management have shared their views with Wealth DFM in terms of what the Bank’s next move could mean for investors. Their insights highlight the cautious approach policymakers are likely to take, and the strategies that wealth managers may be considering in this environment.
For real-time analysis and expert reaction once the MPC’s decision is announced, check back with us here on Wealth DFM tomorrow after midday.
No change to UK interest rates this week in more decisive outcome says Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services, as he comments: “Having cut the UK base rate six times in the current cycle, rate setters on the Bank of England’s Monetary Policy Committee (MPC) will be wary of opting for a seventh easing. However, with inflation widely expected to fall sharply from April and settle at lower levels, the door is certainly open to cuts in the near future.
“The MPC has been guarded in both the language used to accompany earlier rate cuts and in relation to future prospects. December’s easing was typical in this regard, with the statement explaining that while policy remains on a “gradual downward path”, future judgements will become “a closer call”.
“The 9-person MPC has hardly sung from the same hymn sheet for many months and December was no exception. In a 5-4 vote in which Governor Andrew Bailey sided with the doves, members emphasised that future rate cuts would likely be harder earned and slower paced. This articulation is natural as the base rate descends to a more neutral level. Furthermore, prevailing inflationary pressures have not yet dropped to levels which would see more hawkish committee members drop their guard.
“Economic data released since December’s rate cut generally confirm that near-term caution is warranted. CPI inflation has nudged up, and a further softening in the labour market and rebound in economic activity is expected. However, persistently sticky wage data will likely prove decisive in a less divided decision this time.
“Beyond the rate decision, focus will be on updated economic forecasts. Whilst likely guarded in relation to the near-term outlook for pay growth, estimates will surely show that CPI inflation will hit its 2% target over time. The key moment in the immediate future will be confirmation that regulatory and other price adjustments from April 2025 will drop out of annualised calculations this year. This should result in CPI inflation dipping below target sooner than the Bank anticipates, providing scope for easier policy in months to come.”
Commenting ahead of the upcoming Bank of England interest rate decision on Thursday, Charlie Ambler, Co-Chief Investment Officer, Partner at wealth management firm Saltus, said: “Having cut the base rate to its lowest level in almost three years in December, the Bank of England now finds itself in a more delicate phase of the easing cycle. Progress on services inflation and wage growth remains key, and with headline inflation ticking higher last month, the consensus expectation is that rates will be held at 3.75% this week.
“Short term fluctuations in inflation data are unlikely to alter the broader direction of travel, but the Bank will be keen to reinforce its commitment to a gradual and measured approach to rate cuts. The full disinflationary impact of the tax measures announced in the Autumn Budget has yet to feed through, which means policymakers are likely to strike a cautious tone in their forward guidance. How confident the Bank sounds that inflationary pressures are being brought under control will be closely watched by markets.
“For investors, the backdrop remains one of uncertainty. Persistent inflation pressures and ongoing geopolitical risks continue to shape asset allocation decisions, reflected in sustained demand for both gold and government bonds. In this environment, the focus should remain firmly on quality and resilience, with disciplined portfolio construction and selective exposure to interest-rate-sensitive areas and UK equities where valuations remain compelling.”
Peter Goves, Head of Developed Market Debt Sovereign Research of MFS Investment Management said: “The Bank of England is highly likely to keep its policy rate on hold at 3.75% on Thursday. The MPC is likely to remain divided and cautious. Data isn’t convincing enough to lurch the committee one way or another. The labour market is loosening, pay growth is falling from elevated levels and growth saw some rebound in the last print. That said, we think the demand outlook remains somewhat subdued and the BoE is highly likely to lower its near term inflation path (partly on the back of government measures in the budget). We therefore think more cuts are coming (unlike the ECB) which keeps us constructive on the front-end of the curve. The long-end is another matter – more exposed to politics and we are mindful of the upcoming by-election and broader local elections in May which could see further challengers to Starmer’s leadership.”
