Investment Clock insights

Near term UK interest rate hikes unlikely despite robust growth


Ian Kernohan & Trevor Greetham

2 February 2017

Commenting on today’s Bank of England announcements, Ian Kernohan, said: 
Following the relatively robust GDP report for the fourth quarter of 2016, the Bank of England has raised its GDP growth forecast for this year by more than I expected, but made little change to their inflation projection.   
The Monetary Policy Committee (MPC) expect inflation to overshoot the 2% target, however this rise is coming from very low levels and is driven by some temporary factors. Wage growth, a key indicator of underlying inflation, remains modest. 
With higher inflation set to squeeze household incomes this year, and the likely shape of the UK’s trading arrangements post-Brexit still very unclear, we think the MPC will be reluctant to add to these pressures on the economy by raising interest rates in the near future.
Trevor Greetham, said: 
Household saving is set to fall to its lowest level since the early 1960s. To make matters worse, inflation has been eating away at cash savings since the financial crisis and Brexit is going to speed this process up. Sterling weakness is pushing inflation higher but interest rates are likely to stay close to zero while EU exit negotiations are under way. 
Savers should consider moving long-term holdings out of cash and adopting a low risk multi asset approach which aims to generate real returns.

Commenting on today’s Bank of England announcements, Ian Kernohan, said: 

Following the relatively robust GDP report for the fourth quarter of 2016, the Bank of England has raised its GDP growth forecast for this year by more than I expected, but made little change to their inflation projection.   

The Monetary Policy Committee (MPC) expect inflation to overshoot the 2% target, however this rise is coming from very low levels and is driven by some temporary factors. Wage growth, a key indicator of underlying inflation, remains modest. 

With higher inflation set to squeeze household incomes this year, and the likely shape of the UK’s trading arrangements post-Brexit still very unclear, we think the MPC will be reluctant to add to these pressures on the economy by raising interest rates in the near future.

Trevor Greetham, said: 

Household saving is set to fall to its lowest level since the early 1960s. To make matters worse, inflation has been eating away at cash savings since the financial crisis and Brexit is going to speed this process up. Sterling weakness is pushing inflation higher but interest rates are likely to stay close to zero while EU exit negotiations are under way. 

Savers should consider moving long-term holdings out of cash and adopting a low risk multi asset approach which aims to generate real returns.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.