Surprise interest rate pause

The Bank of England Governor Andrew Bailey is facing a backlash from economists and MPs for ‘crying wolf’ over an interest rate hike.

Critics questioned whether he was the right man to lead the Bank after a ‘big communications failure’ on interest rates prompted lenders to raise mortgage costs unnecessarily – and sent currency markets into a tailspin. Mr Bailey was also criticised for focusing on the Bank’s links to the slave trade and allowing officials to keep working from home at a time when the economy needs urgent attention due to rising inflation.

The Governor had given a strong signal that interest rates were set to rise when he said in October that the Bank ‘will have to act’ to control inflation, which is now predicted to hit five per cent next year. Yet, last Thursday, he surprised economists by voting against an increase, and rates were left unchanged at 0.1%.

Lenders including HSBC, NatWest and Nationwide had become so convinced by Mr Bailey’s earlier comments that they had already pulled their best deals or raised rates in advance of the vote. City investors were also wrong-footed, with the pound sent tumbling against the dollar in its worst week since August. Economist Gerard Lyons, who was previously in the frame for the job as Governor, said millions of borrowers were paying the price for ‘poor’ communication by the Governor.

Commentators have pointed out that it’s already led to higher mortgage rates – and so an impact is already being had on people’s finances. Mr Bailey has also come under scrutiny for focusing on issues other than inflation and rates as the country attempts to recover from the pandemic and the price of goods and fuel rises ahead of Christmas. In August, the Bank removed oil paintings and busts of seven leading figures from between 1698 and 1814 on the grounds that they had links with slavery. It has now appointed a researcher to ‘explore the Bank’s historic links with the transatlantic slave trade in detail’.

If you would like to discuss the above in more detail, please reach out to your financial planner.

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise and investors may not get back the amounts originally invested.

You are now departing from the regulatory site of Finura. Finura is not responsible for the accuracy of the information contained within the linked site.

Sources: Techlink