Bank of England Rates Decision: Hold

Given
that
the
Bank’s
quarterly
economic
forecasts
were
released
just
a
month
ago,
there
are
few
dramatic
changes
in
the
statement
released
today.
Still,
it
predicts
that
CPI
inflation
will
be
softer
in
the
coming
months
than
predicted
in
November,
helped
by
declines
in
energy
prices.
November
CPI
figures
will
be
released
on
Wednesday,
December
20
and
the
number
is
expected
to
decline
further
from
the
4.6%
number
in
October.

Still,
it’s
far
from
mission
accomplished
in
the
fight
against
inflation,
as
outlined
by
many
2024
forecasts.
The
Bank
says
that
“key
indicators
of
UK
inflation
persistence
remain
elevated”
such
as
wage
growth
and
services
price
inflation.

Those
hoping
for
a
“BoE
pivot”,
especially
homeowners
swictching
on
to
new
mortgage
deals,
may
be
disappointed
by
the
Bank’s
ongoing
caution:
“The
MPC
will
continue
to
monitor
closely
indications
of
persistent
inflationary
pressures
and
resilience
in
the
economy
as
a
whole,
including
a
range
of
measures
of
the
underlying
tightness
of
labour
market
conditions,
wage
growth
and
services
price
inflation.
Monetary
policy
will
need
to
be
sufficiently
restrictive
for
sufficiently
long
to
return
inflation
to
the
2%
target
sustainably
in
the
medium
term.”

In
November,
the
Bank
said
rates
will
have
to
remain
“high
enough
for
long
enough”
to
make
sure
inflation
is
beaten.
As
such,
we predicted
earlier
this
week
that the
decision
would
be
to
hold.

We’ve
also
collated
investment
bank
predictions
for
2024,
with
most
anticipating
cuts
next
year.
Goldman
Sachs
AM
expect
these
as
early
as
February
or
March
next
year,
while
Bank
of
America
don’t
forecast
cuts
until
2025.

What
the
Market
Says

Jeremy
Batstone-Carr,
european
strategist,
Raymond
James
Investment
Services,
says:
“The
MPC
may
enact
a
change
in
course
come
2024,
though
the
lagged
impact
of
earlier
rate
hikes
will
still
be
making
their
way
through
the
economy,
likely
leading
to
flatlined
activity
for
most
of
the
new
year
before
a
partial
upturn.”

Rachel
Winter,
partner
and
investment
manager
at
Killik
&
Co,
notes
that
the
BoE’s
decision,
alongside
the
Fed,
will
be
taken
as
a
positive
sign
by
investors
and
consumers. 
With
rates
now
expected
to
fall,
investors
should
start
to
think
about
how
to
best
capitalise
on
this.

“Falling
interest
rate
environments
have
historically
been
good
news
for
both
equities
and
bonds.
More
generally,
a
new
year
is
a
great
time
to
review
investment
portfolios
and
make
sure
they
have
exposure
to
promising
themes
such
as
artificial
intelligence
and
energy
efficiency,”
she
says.

Susannah
Streeter,
head
of
money
and
markets
at
Hargreaves
Lansdown,
adds:
“All
eyes
will
be
trained
on
jobs
and
wage
growth,
and
weakness
in
either
could
be
the
canary
in
the
coalmine
for
the
economy,
which
has
been
sustained
by
robust
spending.
If
we
get
more
weakness
than
is
currently
expected,
that
might
encourage
the
Bank
of
England
to
cut
rates
sooner.”

Meanwhile,
Mark
Taheny,
senior
director
at
corporate
finance
advisor
Centrus,
comments
that
maintained
rates
is
unwelcome
news
for
highly
geared
businesses
especially,
who
will
soon
need
to
refinance
in
order
to
free-up
equity
or
raise
capital.

“With
sustained
high
interest
rates,
refinancing
terms
remain
unfavourable
as
debt
structuring
decisions
become
more
complex
and
urgent
by
the
day,”
he
says.
“This
does
not
relate
to
existing
debt
exclusively
–
any
company
looking
to
grow
needs
to
spend,
and
with
Net
Zero
pressure
looming
larger
by
the
day,
many
firms
will
need
to
invest
in
green
technology
and
infrastructure
in
the
coming
months.”

Richard
Garland,
chief
investment
strategist
at
Omnis
Investments,
comments
on
today’s
MPC
decision:
“Recent
big
moves
in
bond
yields
will
have
reinforced
the
MPC’s
desire
to
push
back
on
the
market’s
increasingly
aggressive
bets
for
rate
cuts
in
2024,
but
this
rate
decision
was
a
non-event.
With
the
Fed
turning
more
dovish
it’s
going
to
be
hard
to
maintain
appropriate
market
pricing
for
rates,
so
expect
more
forward
guidance
and
focus
on
sticky
services
and
wage
inflation.”

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