Our monthly economic review is intended to provide background to recent developments in investment markets as well as to give an indication of how some key issues could impact in the future.
It is not intended that individual investment decisions should be taken based on this information; we are always ready to discuss your individual requirements. We hope you will find this review to be of interest.
Inflation drop sparks rate cut speculation
A surprise sharp decline in the rate of inflation has ignited hopes of an interest rate cut by spring, despite the Bank of England (BoE) insisting it is ‘too early’ to speculate about when rates might be reduced.
Following its latest meeting, which concluded on 13 December, the BoE’s Monetary Policy Committee (MPC) voted by a six to three majority to leave Bank Rate unchanged at 5.25%. This marked the third
successive meeting where the benchmark interest rate had been maintained at its current 15-year high.
The decision was once again a close call, however, with three of the nine-member panel voting to raise rates by a further 0.25 percentage points. The minutes to the meeting also repeated previous guidance
that monetary policy needs to remain ‘sufficiently restrictive for sufficiently long’ in order to return inflation to target.
Commenting on the day the decision was announced, BoE Governor Andrew Bailey reiterated this message. Although Mr Bailey did say he hoped rates were at “the top of the cycle,” he also said he couldn’t “definitively” say rates had peaked. He added, “My view at the moment is it’s really too early to start speculating about cutting interest rates.”
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