Commentary: Interest Rate Hold Announcement

Commenting on the interest rate hold from the Bank of England, William Marshall, Chief Investment Officer – Hymans Robertson Investment Services says:

“The Bank of England looks to be edging closer towards its first interest rate cut of this cycle – albeit this meeting was seen as too soon. Some of the recent key drivers of inflation, like energy and food, have all but disappeared. Only the services sector is contributing meaningfully to inflation, which is why the BoE remains so focused on wages as one of the key inputs into services inflation.

The setbacks that the US has experienced with inflation data over the last few months has pushed back the Federal Reserve from cutting soon. There is conjecture that this will delay other central banks like the BoE and ECB, who wish to avoid weaker currencies raising import prices. However, the UK economy is far weaker than the US and members of the MPC have tried to give the impression that they move fully independently of Fed policy. A slower Fed may mean the BoE will move more carefully but it shouldn’t stop the cuts altogether.

The prospect of near-term interest rate cuts increases the attractiveness of bonds (where higher rates can be locked in) over cash for investors.”