Commentary: Bank of England interest rate rise

Commenting on today’s interest rate rise from the Bank of England, William Marshall, Chief Investment Officer – Hymans Robertson Investment Services (HRIS) says:

“The Bank of England’s (BoE) action today, shows the Monetary Policy Committee (MPC) has been cautiously encouraged by recent data, allowing them to increase interest rates by just 0.25%. Until a couple of weeks ago, when inflation data for June was released showing a greater-than-expected drop, it seemed the BoE was heading for another 0.5% increase. Notably, underlying inflation indicators for services and core inflation (which excludes volatile items like food and energy) also fell more than anticipated. This was enough to convince the MPC that a lower hike would be sufficient.

It is important to remember not to rely on a single data point too heavily, especially after so many months of inflation remaining higher than expected. Another nagging doubt in the MPC’s collective mind will be the wage growth data, which continues to show regular pay increasing at over 7% p.a.

Latest market pricing of a peak level of interest rates at just under 6% appears more reasonable than the 6.5% that investors were anticipating a few weeks ago. Although a little behind other major central banks, investors will be hoping that the BoE is nearing the end of the rate hiking cycle. If so this should be supportive for asset prices.”