Ollie
Smith:
Last
week’s
rate
hold
has
some
wondering
whether
the
Bank
of
England
is
anywhere
near
being
ready
to
cut
interest
rates.
Last
year,
Goldman
Sachs,
which
is
famously
bad
at
predicting
anything,
said
rate
cuts
would
probably
happen
in
February
and
March,
but
that
now
looks
unlikely.
Frankly,
it
looks
impossible.
This
has
led
to
speculation
that
–
depending
on
some
fairly
crucial
geopolitical
and
macroeconomic
factors
–
the
BoE
may
have
a
rate
hike
left
in
it
before
monetary
policy
eases
off.
So
what
would
that
mean
for
you?
Over
the
past
two
years,
higher
interest
rates
have
meant
–
theoretically
at
least
–
better
cash
savings
rates
on
bank
accounts
and
ISAs,
giving
savers
more
bang
for
their
buck.
But
higher
rates
also
make
consumer
and
corporate
debt
more
expensive,
placing
pressure
on
anyone
drowning
in
credit
card
debt
and
causing
misery
for
mortgage
holders
on
variable
rate
products.
For
anyone
due
to
remortgage
soon,
this
is
undoubtedly
a
worrying
time.
So
what
of
equities
and
bonds
then?
How
will
they
react?
Markets
tend
to
price
in
any
changes
very
quickly,
so
the
reaction
to
this
kind
of
news
will
be
swift.
Conventional
wisdom
suggests
rate
hikes
are
better
for
bonds
than
equities.
Indeed,
over
the
past
two
years
we’ve
seen
bonds
offer
tempting
yields,
and
the
60/40
portfolio
regain
its
poise
after
a
2022
of
equities
and
bonds
falling
in
lockstep.
Bonds
are
precariously
poised
at
the
moment,
however.
Yes,
inflation
is
falling,
but
monetary
policy
in
the
UK
doesn’t
appear
to
be
following
yet,
so
government
bond
yields
have
started
to
go
up
again.
This
is
good
for
those
chasing
yields
–
especially
if
cash
savings
rates
are
starting
to
fall
ahead
of
rate
cuts
–
but
does
mean
bond
prices
are
under
pressure
again.
Therefore,
a
rate
hike
would
disrupt
the
narrative
that
rates
will
be
cut
heavily
in
2024
and
2025.
Bond
yields
would
spike
and
prices
would
fall,
making
for
lower
total
returns
this
year.
But
bond
investors
could
also
take
the
longer-term
view:
that
we’re
near
the
peak
of
the
rate
hiking
cycle
and
prices
will
rise
as
yields
fall
in
future.
Over
in
the
real
economy,
higher
interest
rates
will
remind
businesses
and
high
street
shops
of
the
cost
of
their
debt,
and
could
discourage
shoppers
from
spending
at
the
till,
lest
they
lose
out
on
savings
rates
at
the
bank.
But,
while
lower
interest
rates
are
said
to
benefit
the
economy,
the
UK
is
still
expected
to
suffer
from
low
growth
in
the
coming
years
wherever
rates
end
up.
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