“Today is Mark Carney’s last Super Thursday. Sadly however, there isn’t much ‘super’ about it as the Bank of England Monetary Policy Committee unsurprisingly decided to sit on its hands again, voting 7-2 to leave interest rates unchanged. And who can blame them. With the recent drama involving Brexit and a general election on the horizon, there is little incentive for them to do much until a clearer picture emerges. Equally, they’ve been waiting for that clearer picture for the last three years …
“The Quarterly Inflation Report also suggested that the outlook for CPI inflation was a little weaker – forecast to decline to 1.25% by spring next year. There’s a little bit of optimism that demand will eventually pick up, and cause prices to rise by 2022. We shall see. Might well depend on the outcome on December 12th!”
So what does this mean for investors?
“Even though the rate of inflation is forecast to dip briefly, it will still remain higher than the return you’ll get on your cash so holding too much of it will lose you money. In fact, in the UK returns on cash has been lower than inflation in every year since 2009. Over the last ten years, holding cash would have chomped up one fifth of your buying-power – even before taxes and bank charges (taking consumer inflation into account).
“An advantage of cash is that it’s immediately available. You can go to the bank and get your money right away. But most investors don’t need this facility. If you’re in your thirties your expected lifespan is another fifty to sixty years meaning you’re a very long term investor indeed. For long term investors then cash is an expensive luxury. Most people would be better off holding as little cash as possible and buying a chunk of equities instead.”
Kerim Derhalli, CEO and founder of Invstr has also commented: “It’s no huge surprise that the Bank elected to leave rates unchanged today, despite dissenting opinion from two MPC members. Underwhelming UK productivity, poor-to-non-existent economic growth and a relatively unchanged inflation outlook have all had their part to play in today’s decision.
“These of course weren’t the only considerations which affected today’s decision however. Uncertainty reigns at the BoE as it remains in limbo over its next Governor, awaits the outcome of a divisive election and is yet to see what terms the UK will leave the EU on come January – if indeed it leaves at all.
“Far beyond the MPC’s control, these factors have left the committee with no choice but to wait for the dust to settle. It may be some time yet before we see any clarity in the UK’s economic outlook or any loosening of monetary policy.”
Watch the live press conference with Mark Carney here: https://ifamagazine.com/article/monetary-policy-report/