MPC Pinned Down On Interest Rate Decision By The Bigger Picture

Fiducia Commercial Network Managing Director Mark Grant believes the Bank of England may resist raising the interest rate next week.

He believes the Monetary Policy Committee (MPC) may resist any changes because of the ‘bigger picture’ caused by global events.

Mark, who leads Fiducial Commercial Network in the UK believes the knock on of further interest rate rises for families and small businesses could influence the MPC’s interest rate decision.

He said: “We are nine days away from the Bank of England’s next rate setting committee verdict on Thursday, November 2^nd. 

“Recent economic data, far from pointing to a clear way forward, is contradictory and being released when macro events globally – let’s call it the bigger picture – have already moved on from the date the data was compiled to.

“UK GDP for August turned positive and so could the reaction to it have been, if it were not for experts already talking down economic performance in Q4, including for the key services sector.

Brent Crude Prices

“CPI Inflation released for September stubbornly remained at 6.7%, confounding exerts’ modest forecast of a 0.2% fall – and through the figures overall food prices again stood out as the thorn in our pockets’ side at +13.5%.

“This data was released in the context of an escalating situation in the Middle East, and that bigger picture has been causing Brent Crude prices to tick up by $1 per barrel every day over the recent period.

“Where oil prices rise, the price of everything else tends to follow, so nobody will have been taking this as a downward pressure on inflation in the coming months in the bigger picture of things.

“And add into this mix average earnings in the UK, last released in October for the 3 months to August and rising at 7.8% in this period. 

“Wage inflation running at over a percentage point higher than price inflation is not settling nerves around predictions for when we will see the end of the current interest rate rising cycle.”

Divided

The MPC were divided when they last met in September to consider interest rate change. The nine-strong committee ultimately voted five-to-four in favour of taking no action.

Four members wanted to increase the bank rate from 5.25% by 0.25% whilst the remaining five voted for it to stay.

Mark believes the committee are likely to repeat their decision in wake of the wide global economic picture when they meet next week.

He added: “The best hopes for the Bank of England’s MPC committee to hold fire and keep rates on hold in the face of the bigger picture and current data set lie on a very negative potential consequence of rates rising again.

“Millions of families and small businesses are already struggling with the impacts of inflation combined with higher interest rates increasing their debt servicing costs.

“It brings into focus the Bank of England’s mandate to solely combat inflation, and to be seen to be above political pressures in their decisions. 

“But they will have one eye on the impact of their next decision on the economy over the coming months and years, and the very individual impact on families and small businesses.

“They, like us, are pinned down by the bigger picture.”

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