UK rates rise prompts local reaction

Monday 06 August 2018

Increasing the UK's base rate of inflation was probably aimed at "alleviating some of the pressure on consumption" said Brooks Macdonald.

The firm said "political uncertainty will continue to weigh on corporate sentiment and investment" though.

Having raised rates for the first time in a decade back in November, the Bank of England increased the UK Base Rate for a second time this cycle last week. It was, as had been widely expected, increased from 0.50% to 0.75%.

Nevertheless, Brooks Macdonald International said "there was a hawkish spin on the accompanying communications, with the surprises of a unanimous vote by the Monetary Policy Committee (MPC) to raise rates and the BoE raising its growth forecasts. Furthermore, the estimate of the neutral interest rate provided in the BoE’s accompanying Inflation Report exceeded expectations at 2.00%–3.00%."

Kevin Boscher, CIO, Brooks Macdonald International, said:

“Over the next 12 months, the UK economy will continue to face the same headwinds that have suppressed growth in recent years. We recognise that some consumption data has improved recently, but this is likely the result of temporary factors such as hot weather in the second quarter, England’s performance in the World Cup and the royal wedding. Overall, real wage growth will remain under pressure and it is likely that the MPC aimed today’s decision at alleviating some of the pressure on consumption. Meanwhile, political uncertainty will continue to weigh on corporate sentiment and investment. Although it appears some progress is being made in the Brexit negotiations, little meaningful post-Brexit clarity has been provided in key areas such as trade. The risks associated with a last minute Brexit deal (or no deal) remain and productivity growth is expected to remain low.”

Pictured: Kevin Boscher