BANK OF ENGLAND TO PAUSE INTEREST RISES?

27.09.2023 After fourteen consecutive interest rate rises the Bank of England decided to hold interest rate unchanged at 5.25% at its most recent meeting. Below we look at the outlook for interest rates and the implications for wider UK markets.

Initially the upsurge in UK inflation was caused by external factors: global supply chain disruption and increased food and energy costs associated with the war in Ukraine. However, with these inflationary shocks in the process of dissipating the focus has now moved onto elevated wage growth and the associated domestically generated inflation.

The Bank England narrowly voted to pause its cycle of interest rate rises because it saw evidence that the domestic pressures to raise wages are becoming less acute. For example, surveys suggest that the rate of economic growth is slowing. Furthermore, the unemployment rate has risen from 3.5% to 4.3% over the last year while job vacancies have fallen from a peak of 1,300,000 to 989,000.

For interest rates to stay on hold in November the Bank of England would need to see continued good news on inflation as well as evidence that conditions in the UK labour market continue to soften. Given the increasing evidence that the UK economy is in the midst of a broad based slow down the Bank of England has probably finished raising interest rates for the foreseeable future.

As markets adjust to the end of the Bank of England cycle of interest rate rises investors are likely to turn their attention to corporate bonds, property and infrastructure shares to take advantage of the currently high yields on offer in these sectors.

For information only. Investors should seek professional advice for their own circumstances before making an investment.

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This post was written by Robin