X

X

More of the Same

Bank of England image

Surprise, surprise, the Bank of England has held the base rate down at 0.5% for the 65th month in a row. All of Mark Carney’s vague talk about policy guidance may have led some of the more easily frightened among us to suspect that he might have had a wild card up his sleeve, but it would have been a pretty nasty shock if he’d actually acted on it.

It would also have boosted sterling to a level that the country really doesn’t need at the moment. And it would have had Alex Salmond chortling all the way to the ballot box as Scotland prepares for its 18th September vote on whether or not to stay within the UK. (An odd situation, incidentally, since Mr Salmond wants to carry on using the pound while simultaneously unplugging himself from the fiscal mechanisms that support and control it.)

But that’s a side issue. Considering that the last Markit/CIPS services purchasing managers' index (PMI), released on 3rd July, showed a healthy reading of 57.7, where 50 would denote straight ahead, and a services employment index at a record high of 58.8 in June, there would seem to be almost enough positive indicators to give the governor the space he needs for a pre-emptive rate hike this side of next January. Things are really going quite well at the moment.

The View from Hargreaves Lansdown

As Ben Brettell, Senior Economist at Hargreaves Lansdown, said today: “Second-guessing the actions of central bankers seems to have become a national pastime. While today’s no-change decision comes as no surprise, the minutes of this week’s meeting, due to be released on the 23rd of July, will be scrutinised for clues as to when UK interest rates might eventually rise.”

 “On the face of it, falling unemployment and strong GDP growth point to a robust UK recovery. However, a closer look at the evidence suggests the economy is not yet strong enough to withstand a rate rise.”

And why not? “The private sector remains highly indebted,” he says, “and the impressive unemployment figures mask a number of underlying factors. Many of the jobs being created are among the self-employed – workers who can effectively price themselves into a job. Furthermore a high proportion of part time workers are seeking full time work. It seems fair to assume that a significant degree of slack in the labour market remains.”

Hallelujah to that. The last thing Britain needs right now is anything that makes it harder to export to continental Europe at the exact moment when the euro is on the floor. And we’d agree with Mr Brettell that when rates finally do start to rise, they’ll do so slowly, ending up at much lower levels than we saw before the crisis. Brettell reckons that rates of 2-3% may be on the cards in three to five years’ time. And mortgage applications are already being stress-tested to those sorts of levels. Good.

This Week’s Most Read

Latest IFA Magazine Podcast Episodes

Keep updated on the most important financial events 

Make sure you are an informed

wealth professional..

Adblock Blocker

We have detected that you are using

adblocking plugin in your browser. 

IFA Magazine