BoE has missed another opportunity to raise rates


Craig Inches, Head of Short Rates & Cash 

10 May 2018

We are modestly overweight equities, commodities and short duration high yield bonds in our multi asset funds, but underweight fixed income and cash. We bought equities in the sharp market declines in Q1 and have been graduallA month after playing down expectations of a rate hike, the Bank of England (BoE) raised few eyebrows as it announced that interest rates would be remaining at 0.5%.
In our view, the Bank has missed another opportunity to raise rates. Despite a run of soft data, the economy may turn out to be more robust than recent evidence, and the Bank’s newly lowered forecasts, suggest.
Interestingly two members of the Monetary Policy Committee (MPC) also agree with us, while the press conference by Mark Carney and colleagues was in fact more hawkish than the headlines suggest. 
The governor stated that the main reason they did not raise rates today was because of the soft data in the first quarter of the year. If this rebounds as they expect then it is likely we could see a rate rise at any one of the upcoming meetings including June. In simple terms, the Bank is poised and any glimmer of stronger data will be met with less accommodative policy.
The only concrete outcome from today’s meeting is another example of forward misguidance from the BoE. These mixed messages will only continue to increase volatility in bond markets and create uncertainty in the wider economy.

A month after playing down expectations of a rate hike, the Bank of England (BoE) raised few eyebrows as it announced that interest rates would be remaining at 0.5%.

In our view, the Bank has missed another opportunity to raise rates. Despite a run of soft data, the economy may turn out to be more robust than recent evidence, and the Bank’s newly lowered forecasts, suggest.

Interestingly two members of the Monetary Policy Committee (MPC) also agree with us, while the press conference by Mark Carney and colleagues was in fact more hawkish than the headlines suggest. 

The governor stated that the main reason they did not raise rates today was because of the soft data in the first quarter of the year. If this rebounds as they expect then it is likely we could see a rate rise at any one of the upcoming meetings including June. In simple terms, the Bank is poised and any glimmer of stronger data will be met with less accommodative policy.

The only concrete outcome from today’s meeting is another example of forward misguidance from the BoE. These mixed messages will only continue to increase volatility in bond markets and create uncertainty in the wider economy.

Past performance is no guide to the future. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.