"The true impact of the previous rate hikes has yet to be felt, and there's no sign these rate hikes are working on inflation"
Ahead of this week's Monetary Policy Committee meeting, PR platform Newspage asked a selection of financial services experts whether they think the Bank of England should increase rates this week and how they believe it has handled the inflation crisis to date.
Samuel Mather-Holgate, IFA at Mather and Murray Financial: "Inflation will fall more than predicted on Wednesday, but the central bank appear to be wedded to the idea of continued rate rises. Andrew Bailey and his cronies have cognitive dissonance on the topic and will ignore all data that suggests rates should not rise."
Kevin Bailey, managing director at Wessex Investment Management: "The Bank of England shouldn't be increasing rates on Thursday. In fact, it should be reducing them. Threadneedle Street needs to prove it is independent of thought rather than a "follower of fashion". The economy cannot withstand the predicted 0.5% increase. Individuals and businesses will suffer. Home repossessions will begin to increase as borrowers default on their loans. If rates are raised further on Thursday, the future is bleak."
Luke Thompson, director at PAB Wealth Management: "I think we are at a tipping point where the Bank of England really needs to think about what it is doing with interest rates. What they have been doing is having no real effect on the inflation figures and all they are doing is creating pain for homeowners. Even saying this, I expect them to up the base rate again by another 0.25%. They are following what they believe is a tried and tested path and I can't see them deviating away from it. I think the Bank of England has handled the whole situation around the base rate terribly. 18 months ago they were telling us the inflation figures were transitory when they clearly weren't and they were far too slow to react to inflation when it was starting to run away at the end of 2021. Andrew Bailey didn't do a very good job at the FCA and he has followed that up by appearing to be out of his depth as the Governor of the Bank of England."
Stuart Gregory, director at Lentune Mortgage Consultancy: "Should the Bank of England hike rates? No. Will they? Yes. The true impact of the previous rate hikes has yet to be felt, and there's no sign these rate hikes are working on inflation. The Bank of England has been shambolic, which is not surprising given that Bailey was Johnson's preference."
Gary Bush, financial adviser at MortgageShop.com: "What happens on Thursday lunchtime will depend on what happens Wednesday morning when the inflation figure drops. We are hoping to see at least a 6 at the start of the inflation figure, and if this happens, to have had a 5% decrease since the peak last October "should" be good enough reason for some calm hopefully. Obviously, having inflation still raging far higher than the UK's target figure of 2% isn't great but the Bank of England not acting fast enough in raising rates by a great enough amount initially has led to where we are now. On my wish list is calm actions, let's see if we get them."
Rhys Schofield, director at Peak Mortgages and Protection: "On balance, it takes the biscuit that households are bearing the brunt of economic decisions outside of their control. Getting hammered each month doesn't undo the fallout from Brexit or fluctuating fuel costs. Will rates go up anyway? Probably, yes as the Bank of England have to be seen to be doing something about a situation that they aren't in control of."
Lewis Shaw, founder and mortgage expert at Shaw Financial Services: "Should they increase? No. Will they increase? Yes. The Bank of England is in a Catch-22: if they don't raise the base rate, they'll be accused of not dealing with inflation robustly enough. If they do raise rates, they're forcing more hardship on the public and businesses, who will have to pay higher payments on their debt. With the 2-year gilt yield hovering just below 5% and having broken through 5% albeit briefly last week, it's odds on that they'll hike the base rate by another 50 basis points on Thursday."
Jamie Lennox, director at Dimora Mortgages: "This week's inflation data is going to be huge for how the rest of 2023 pans out. If inflation comes in higher than expected, we will likely see larger increases to the base rate and it will stay higher for longer. We are experiencing cost-led inflation and with rate rises so far impacting a smaller proportion of homeowners given a number are still within a fixed period, you do have to wonder what impact these hikes are having. I appreciate with other central banks raising rates we couldn't afford to be left behind due to the damage it could cause to the value of Sterling. However, with the FED pausing with further increases last week, this should take off some of that pressure. Questions marks still remain, though. We were too slow to react to inflation and steps should have been taken sooner, which has left the Bank of England chasing its tail."
Graham Cox, founder at SelfEmployedMortgageHub.com: "The effects of the most recent rate rises haven't even fed through to the economy yet, as there's at least a six month time lag. So I think the Bank of England should leave the base rate unchanged. Will they do so? Unlikely, as I think they're concerned about the money markets' reaction if they don't hike. That said, if Wednesday's inflation figures are better than expected, then it's possible. We might even see lenders cut their mortgage rates. But as things stand, my money's on a 0.25% increase to 4.75%."
Elliott Culley, director at Switch Mortgage Finance: "With the majority of mortgages on fixed rates, it takes time for interest rate rises to have an impact. That's why recent interest hikes haven't affected inflation figures as quickly as they had hoped. The inflation figures this week will impact how the Bank of England reacts. It seems inevitable that the interest rates will rise again, but this year has been extremely unpredictable. This month we have seen big increases in mortgage rates due to data not running in line with predictions. Higher inflation data and strong wage growth have contributed to the market's current reaction. If the inflation figures are higher than expected, then we are set for further rises and could see a 0.5% rise. However, if we see results more in line with expectations, we may see a cooling off of rate rises in the future, but for now a minimum of 0.25% looks likely."
Rohit Kohli, operations director at The Mortgage Stop: "I think it's inevitable that the Bank of England will raise rates on Thursday, even if we see lower overall inflation figures released on Wednesday. Inflation for core goods is still expected to be high and this is coupled with the fact that the Bank has a point to prove having been so roundly criticised for its poor performance in reacting so far. The question is how far will they go? Will it be limited to a quarter-point rise or will they dare to go further given the government has essentially given its blessing to do "whatever it takes" to get inflation under control?"
John Choong, equity research analyst at Investing Reviews: "Considering last month's hotter-than-expected inflation and wage data, there are fears that the MPC will hike interest rates by 50bps on Thursday. That said, the all-important CPI inflation print will be released the day before Andrew Bailey and his fellow members make their decision on whether to raise rates. Another hot print could cement the fate of another few rate hikes, and see mortgage rates jump to fresh highs, causing another round of turmoil. However, a cooler-than-expected print could see the central bank opt to hold rates steady. It's worth noting that two members had voted to not hike in the last meeting, as the full impact of rate hikes is yet to be fully felt by the UK economy given the lagged effect of monetary policy. Even so, the Bank of England will most likely hike rates by another 25bps if CPI inflation comes in around consensus estimates of 8.5%, as they face increasing amounts of pressure from politicians to get inflation back down to their 2% target."
Ross McMillan, owner and mortgage adviser at Blue Fish Mortgage Solutions: "If the markets are to be believed then a further rate hike seems sadly inevitable and lenders have already effectively now priced this in as if it had already happened. Unfortunately, the dogged pursuit of a notional inflation target by the government and Bank of England doesn't appear to have any degree of patience built in. Within the bigger picture, rather than continuing to hammer the same nail repeatedly it could be prudent and welcomed for the Bank of England to at least allow some time to assess whether the actions already taken have grasped a reasonable hold or whether the bigger picture does indeed need more hammering and nails to keep it straight. Sadly, and seemingly regardless of evidence or whether the impending inflation figures are deemed good, bad or ugly, it appears unlikely that a more cautious and rounded approach will suddenly be forthcoming."
Daniel Wiltshire, actuary and IFA at Wiltshire Wealth: "The Monetary Policy Commitee have got themselves into a right spot of bother. Raise rates and they risk tipping the country into recession, ease off and they could effectively be construed to be giving up on curtailing inflation. It reminds me of the joke about a tourist who asks for directions; the response being "Well sir, if I were you, I wouldn’t start from here". The sad fact is, the Bank of England was too slow and too meek when inflation first reared its ugly head 18 months ago. We are all now paying the price."
