By Michiel Willems
The governor of the Bank of England, Andrew Bailey, and the rest of the monetary policy committee will hike interest rates 50 basis points today at 12pm.
The main reason? Living costs are up 9.4 per cent over the last year, crimping households and businesses and threatening to plunge the UK economy into recession.
Energy prices have been propelled by Russia’s invasion of Ukraine jolting the European gas market, which could lead to a more than 60 per cent rise in the price cap in October.
Ahead of the Bank of England’s rate decision today, City A.M. asked a selection of wealth managers, financial advisors, brokers and estate agents whether they think rates should be increased, and why?
To Adrian Murphy, CEO of wealth manager Murphy Wealth, it is clear that the US is leading the way on taking action against rampant inflation, which has become a global problem.
“Many say it has come a little late. It is likely that the UK will now follow suit, and that isn’t a bad thing,” he said.
“The biggest threat to the UK economy, and investors, is high inflation and low growth, so action is required.”
“UK inflation has proven to be more stubborn than initially hoped and there is little to shelter investors and savers from value erosion,” he added.
“The Bank of England has the unenviable task of taming inflation through interest rate rises, without choking off the fragile growth in the UK economy that is so badly needed after the ravages of Covid,” Murphy noted.
Meanwhile, Imran Hussain, director at Harmony Financial Services it the Bank of England does not have a choice but to increase rates this week.
“However, rate rises in themselves won’t be enough in the battle against rampaging inflation so there will have to be government intervention, too, specifically in relation to utilities,” he said.
“If not, whatever the Bank of England does still won’t help ordinary working people in what is fast becoming an unprecedented cost of living crisis.”
However, Simon Shinerock, chairman of Choices Estate Agency pointed out hat there are pros and cons of raising rates, mostly to do with exchange rates.
“If we don’t increase rates, then the pound will get weaker and imports more expensive, thus adding to inflation. Our exports, however, will be more competitive,” he stressed.
“If we increase rates, the pound will strengthen, making imports cheaper, but our exports less competitive. Higher interest rates also control demand-led inflation, which is probably coming under control anyway due to the cost of living crisis,” Shinerock continued.
Lewis Shaw, founder of Shaw Financial Services, said in agreement that “the pound has weakened against other currencies, which means imports are more costly and also contribute to higher inflation.”
“The Bank of England is stuck between a rock and a hard place.”
“Moreover, it’s the only tool they have at their disposal,” Shaow continued. “And if the Bank of England don’t raise rates, there’s a risk politicians will scapegoat them for further adding to the current inflationary problems.
However, it is unlikely that any base rate increases will bring inflation under control because most of the current inflation is due to higher energy prices following the oil shocks because of the war in Ukraine, higher fuel prices because of the same and increasing shopping costs due to increased logistics prices.
“We don’t have a joined-up approach to solving this inflationary crisis or an answer to permanently higher prices, which will make everyone poorer,” Shaw said.
“The Government has taken its eye off the ball and is naval gazing when we need targeted political intervention.”
Rob Peters, director of Simple Fast Mortgage, thinks the Bank of England does not have the right tools.
“While the Bank of England’s remit is clear, namely to ‘control inflation’, they simply don’t have the right tools for the job.”
“It’s a bit like your builder turning up to work with just a hammer.”
“Undoubtedly, there will be no choice but to increase interest rates this week. The key drivers of inflation remain energy prices and supply chain issues for many of the products we all need,” Peters said.
“The Bank of England is helpless to assist in these matters and we will all continue to feel the pain, potentially for some time yet.”
Finally, Samuel Mather-Holgate of Mather & Murray Financial, pointed out that “raising rates isn’t going to combat inflation that we import in terms of the global oil price or commodity prices such as wheat and grain.
“It’s clear that a recession is around the corner, and this will drive inflation lower.”
“It’s obvious that now is not the time to be raising rates. It would be ineffective and counter-productive. There needs to be a collective effort from the Bank of England and the Government to stave off what is shaping up to be a severe recession,” he concluded.
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