The Bank of England (BoE) confirmed today that it’s Monetary Policy Committee (MPC) voted by 8-1 to maintain the Bank rate at its current record low of 0.5%, whilst maintain the stock of purchased assets financed by the issuance of central bank reserves at £375bn.
The BoE also highlighted growing concern about the fact that CPI inflation fell back to zero in June, significantly below its 2% target. “The Committee intends to set monetary policy in order to ensure that growth is sufficient to absorb the remaining economic slack so as to return inflation to the target within two years” the MPC stated.
Andrew Wilson, CEO EMEA of Goldman Sachs Asset Management (GSAM), comments: “Whilst the single vote for a rate rise from the MPC was lower than the two or three that some economists were predicting, it offers a small signal that a rate rise is inching closer. We think this is likely to be a H1 2016 event rather than a 2015 event. The composition of the committee is about to change, and we should remember that there have been false dawns on monetary tightening before.
Gary Edwards, head of Growth and Acquisition Finance at Investec says: “Today’s vote confounded expectations of a clear hawkish signal on rates. When the MPC does give one, the temptation for many will be to batten down the hatches and suspend investment in their businesses, in anticipation of rising borrowing costs. Companies confident in their growth prospects should do the exact opposite and raise debt to boost shareholder value, helping them to absorb the effects of an eventual rate rise. We’re ready to back companies that can outperform by providing debt for investment and growth.”
Robert Gardner, co-chief executive of Redington emphasises that even a rate hike is no panacea for UK pension funds: “Given the rock-bottom rate environment the pensions industry has endured since the financial crisis, many see a rate rise as a manna from heaven, but the reality is far more complex.
“Even if the Bank of England does raise base rates by 0.25% it’s unlikely that 30-year gilts will move higher by the same amount. So we can see that 0.25% interest rate rise would hardly be game-changing” he explains.