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“Further rate rises will push more and more people into financial crisis” – views from brokers, wealth managers and money experts ahead of rate decision tomorrow

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Ahead of the Bank of England’s interest rate decision tomorrow, we asked brokers, wealth managers and financial planners for their views on whether Bank Rate should be raised.

One expressed serious concern that further rate rises will “push more and more people into financial crisis”, while another raised doubts about the ability of Bank of England governor, Andrew Bailey, to provide the “bold, contrarian thinking” that’s needed. Their views are below.

David Robinson, co-founder and chartered wealth manager at London-based Wildcat Law: “Like King Canute, the Bank of England will no doubt raise interest rates on Thursday, not because they expect to turn back the tide of inflation, but to show that they are in fact powerless to do so. We appear to be locked in a vicious spiral that is more dangerous than the Global Financial Crisis. Stagflation is being whispered about by many in the city. Raising interest rates at this time threatens companies that were already weakened by the global pandemic.

“The rising cost of debt combined with inflation risks forcing many businesses under, which at some point will impact the labour market. As much of our inflation is imported you have the seeds of a perfect storm. We require some bold, contrarian thinking by the Bank of England, but unfortunately Andrew Bailey is unlikely to provide this. He appears happy to go down with the ship shouting ‘I told you so’.”

Dominik Lipnicki, director of Your Mortgage Decisions: “Whilst many predict yet another Bank of England base rate rise, few believe that this will dampen inflation. Our economy is faltering and the current high level of inflation is not the result of an overheating economy, so raising rates further will arguably do more harm than good. The Bank of England must also consider the risk of a recession and the devastating impact the current cost of living crisis is having on millions.

“We have already seen huge rises in mortgage rates and further base rate rises will push more and more people into financial crisis. Understandably, we are seeing more and more clients taking out longer term fixed deals when remortgaging, giving them that much needed stability. With inflation set to rise further, together with the highest tax burden in more than a generation, the future for potentially millions of people is very bleak indeed.”

Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com: “The Bank of England’s dilemma is if they don’t raise rates, and the Fed and European Central Bank do, the pound will fall even further. This, of course, is inflationary as it pushes up the cost of imported goods, including food and oil. There probably needs to be an agreed approach amongst the G7 regarding monetary policy, but whether that’s likely or not is anyone’s guess. Some lenders price in rate increases before an expected base rate hike, others wait until after. But further interest and mortgage rate increases seem almost certain until inflation shows signs of coming under control, which doesn’t seem imminent.”

Philip Dragoumis, owner of Thera Wealth Management: “The Bank of England has been behind the curve on inflation, and should have raised rates earlier. The level of inflation has caught them completely unaware. Raising rates, however, will have less of an impact as UK inflation is being largely by external factors such as energy, tight supply chains and Brexit, which has made hiring more difficult, increasing wages. Higher rates should, however, serve to cool the housing market. Except for Brexit, the other factors are transitory and inflation should come down over the next two years to 2% (as forecast by the Bank of England).

“The UK, however, has a tough economic outlook given the political situation and the effects of Brexit, and we will continue to see Sterling under pressure. Hence we stick by our preference for global allocations and would not want a UK weighting higher than 5% in a global equity portfolio, in line with global equity indices.”

Scott Taylor-Barr of Shropshire-based broker, Carl Summers Financial Services“I have the impression that the Bank of England is doing something, even if it’s potentially the wrong thing, because it can’t be seen to be doing nothing. However, given that the main drivers of inflation currently are essentials such as food, fuel and energy, how is making borrowing more costly going to control price rises?

“Are people going to stop buying them, or markedly reduce their spending on them? I can’t see how. Small businesses up and down the land have had to shoulder lockdowns, global supply chain issues and staffing issues, not to mention the ever-present threat of Amazon decimating their markets like locusts in a corn field. Now they are potentially being asked to pay even higher costs on their outstanding borrowing, too. You’d start to feel like the Government was trying its hardest to force you out of business.”

Samuel Gee, director at Bristol-based Manning Gee Investments“It’s obvious that rates are going to rise further, but the UK economy couldn’t likely cope with quick, sharp-shock increases. They are likely to be more gradual. In the UK, so much is at stake. You have people borrowed-to-a-hilt who are starkly at risk, and the Bank of England knows it. Inflation does need to be controlled, but we are coming out of a pandemic and a war in Europe isn’t helping. We are likely to see more Government and central bank fire-fighting in the months ahead. I wouldn’t say a half-percent increase is off the table.”

Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “We may see a half-percent rise at this week’s MPC meeting. Some were calling for that size of increase at the last meeting. The Bank of England needs to raise rates to try and tame the inflationary beast rampaging through our economy. They’re currently way behind the curve, increasing the risk of baking in a deeper and prolonged recession due to the risk of falling into a wage-price spiral and the dreaded stagflation, which will set off industrial disputes across the board.

“However, as long as the Bank of England gets a grip on monetary policy as the Bundesbank Bank and Swiss National Bank did in 1970, we may head off a deep recession and minimise unemployment and the extent to which house prices may fall. Decisive action is needed now.”

Graham Wells, financial coach at Haddington-based GroWiser Financial Coaching: “There’s no doubt that interest rates will continue to rise and the impact will hit people in different ways. For savers, it’s neglible. Whatever gains are made from higher interest rates will be wiped out by inflation. Borrowers on fixed rates can breathe a big sigh of relief, at least until any existing deal comes to an end. The real pain will be felt by businesses and individuals with variable rate loans, overdrafts and credit cards. A half percent rise, which is now very possible, could really eat into disposable income, so it’s time to look at restructuring debt to mitigate the inevitable.”

Ross Boyd, founder of the always-on mortgage comparison platform, Dashly.com“It’s not a case of if rates rise further, but when. The Bank of England ‘s hands are tied. Fortunately, many homeowners are on exceptionally low fixed rates and that will support their ability to maintain payments. It’s what happens when they come to the end of their fixed rates that matters now. Many will be in for a serious rate shock if rates continue to rise, something that will be exacerbated if inflation is still well above target.”

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