Sarah Giarrusso, Investment Strategist at Tilney Smith & Williamson, the wealth management and professional services group, comments on the Bank of England’s decision on interest rates:
“The Bank of England in a 7-2 vote decided to leave the Bank Rate unchanged at 0.1% at today’s policy meeting. Meanwhile, the Bank will also maintain its current quantitative easing program. The Monetary Policy Report was also released with a new set of economic forecasts. The Bank expects inflation to peak at 5% in April 2022 and they cut their growth forecast to 5% from 5.3% for 2022.
“The decision to keep interest rates on hold came as a surprise to some given the recent hawkish comments from MPC members and aggressive moves of the market pricing of interest rates. Since the last policy meeting in September, market implied expectations of a rate hike moved dramatically. A hike from the BoE wasn’t priced in until almost mid 2022, however, more recently this has been brought forward to 2021. The main cause of this is the persistent above target inflation readings and subsequent hawkish comments from some MPC members and the Governor himself.
“Prior to the announcement the market had fully priced in a rate hike at the December meeting, however, this has now been pushed back to February. This is due to the 7-2 vote from the MPC members indicating some reluctance to hike rates so soon. This has also dampened the credibility of MPC members somewhat after a series of hawkish comments leading into the meeting. Officials also took this opportunity to push back against aggressive interest rate hikes priced by the market stating that an increase to 1% by the end of next year would leave inflation below target at the end of its forecast period. This is in line with our view that the Bank is unlikely to undergo an aggressive tightening cycle to quell inflation and rates will be raised more slowly. However, an interest rate rise is coming down the line as clearly indicated by the Bank but in our view is unlikely to hinder the economic recovery.”
