City reacts to no action from the Bank of England
Alpesh Paleja, CBI Lead Economist: “Today’s Monetary Policy Committee decision was always going to be on a knife-edge. On balance, the decision to keep interest rates unchanged is the right one. The upcoming rise in inflation will likely prove transitory, and there is as yet only patchy evidence of rising prices becoming embedded in both wage-setting and households’ inflation expectations
“The next few months will be something of a balancing act for the MPC. They will need to navigate monetary policy to both curb any signs of price pressures becoming more entrenched, and support the economic recovery from the pandemic. It’s important to remember that any future changes to interest rates will still leave monetary policy very accommodative, with ample scope to support economic growth going forward.”
Ed Monk, associate director at Fidelity International commented: “It seems inevitable that the Bank of England will raise rates at some stage but borrowers have been given a reprieve for now. The MPC appears in wait-and-see mode while supply chain issues and higher global energy prices – factors beyond the control of the Bank – push inflation higher.
“A delay in raising rates is a signal of the conundrum facing rate-setters. They will be uncomfortable that inflation is running so far above target, but also understand they have limited options to bring price rises down. Maintaining rates at their current emergency low level underlines that the Bank still views growth as being fragile.
“Households need to ready themselves for higher borrowing costs arriving at some stage. Taken alongside rising inflation of prices for everyday items like fuel and energy, and with higher National Insurance and frozen Income Tax rates on the way, household budgets are being chipped away from multiple directions. The financial cost of a rise in rates to 0.25%, whenever that does arrive, may be limited but the shift in consumer sentiment it causes may be much bigger.”
Rachel Winter, Associate Investment Director at Killik & Co, said: “Although markets had priced in a 58% chance of a rate rise taking place this month, the Bank of England has chosen to leave rates on hold for the time being.
“This of course will be at the displeasure of many who are becoming increasingly worried about inflation. Despite a small drop in CPI in September from 3% to 2.9%, the inflation rate is still above the Bank of England’s 2% target, and furthermore the Office for Budget Responsibility expects it to remain high in 2022 and 2023.
“Although last week’s Budget promised to “protect the country from rising inflation and interest rates”, the pledge to raise the UK’s National Living Wage by 6.6% could contribute to an upwards inflationary spiral. The rise in wages could potentially force firms to raise prices, resulting in inflation and forcing employees to demand yet higher wages to cover the rising cost of living. An interest rate rise should put the brakes on demand and hopefully prevent inflation from rising further, and the Bank of England will no doubt be watching the situation incredibly closely.
“Although borrowers will be relieved by today’s decision, many people will be concerned about the impact of rising inflation on their finances. The prevailing interest rate is still far lower than the inflation rate, and therefore the value of cash savings will continue to erode over time. Long-term savers should consider long-term investing as an alternative to keeping money in cash or savings accounts.”
Laura O’Sullivan, Banking Strategy and Consulting Lead, Accenture UK and Ireland: “Against a backdrop of rising inflation, the Bank of England’s halt on a much talked about interest rate hike will bring relief to UK households amidst the rising cost of living.
“Concern will nevertheless remain, however, as markets and consumers are aware that rates are highly likely to be raised in the future. With the overall cost of living rising, households need to be prepared.”
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