Table of Contents
Andrew Bailey risks veering into political territory with his latest comments on interest rates.
After months of playing the waiting game, the Governor of the Bank of England has come out of hiding, hinting that he could be “a little more aggressive” in cutting rates as long as inflation remains low.
The reason for his optimism is that Britain is much stronger than he feared two years ago, even a year ago. What’s more, cost-of-living pressures have not been as persistent as the Bank thought they might be. How strange.
Further cuts: Governor Andrew Bailey (pictured) hinted the Bank of England could be “a little more aggressive” in cutting rates as long as inflation remains low.
It would be interesting to know what planet Bailey has been living on for the last year. Since the spring – if not before – it has been clear that inflation was on the back burner.
May would have been the obvious time to start cutting rates rather than waiting until August, which would have caused even more pain for households and small businesses.
As we know, there is a lag of at least 18 months before the impact of higher rates hits the real economy. That’s why the art of cutting rates – and it’s more art than science – depends on careful timing.
It also raises the question of whether the Bank is out of step with what is happening on the ground.
Just as the Old Lady failed to raise rates when inflation reared its head following the Russian invasion of Ukraine and the pandemic, the danger now is that rates have been too high for too long. So Bailey’s intervention raises uncomfortable questions about the Bank’s neutrality.
Having avoided cutting rates before the election, when economic indicators were good, it is strange to be so optimistic now, particularly with the war in the Middle East still potentially driving up oil prices.
You could say that Bailey is trying to make amends for the ridiculous pessimism spread by the Chancellor, with his optimism that the cuts will come this autumn; November is the next meeting of the monetary policy committee.
We’ll need more than encouragement if Rachel Reeves follows through with her threats to tax everything that moves in her budget. Keeping the alcohol level low could be just the thing to help lift our spirits.
scared
At the Labor conference, the Chancellor made a big song about how, if growth is the challenge, then investment is the solution.
However, their efforts to persuade markets of their sobriety with terrifying fictitious “black holes”, etc., have had the opposite effect. Investors are scared.
Calastone figures show that equity funds saw their first monthly outflows in September since October 2023. Investors were especially negative on UK-focused equity funds, selling £666m. All other countries saw entries.
Investors and big business may have been misled by the Labor Party ahead of the election.
But now they can see that spending billions on subsidized net-zero projects and increased public spending will not lead to growth. If the Chancellor has any capacity for self-reflection, she should eat her words.
Every little bit helps
Tesco is in great shape. Shoppers are also in good shape, the supermarket says, and are stocking up for Christmas.
This fits with anecdotal evidence that consumers are treating themselves at home rather than spending on large items.
DIY INVESTMENT PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-to-use portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free Fund Trading and Investment Ideas
interactive inverter
interactive inverter
Fixed fee investing from £4.99 per month
sax
sax
Get £200 back in trading fees
Trade 212
Trade 212
Free trading and no account commission
Affiliate links: If you purchase a This is Money product you may earn a commission. These offers are chosen by our editorial team as we think they are worth highlighting. This does not affect our editorial independence.
