FTSE 100 Live Sep 23: Bank Holds Interest Rates, Nationwide’s First Two Go
Interest rate fireworks in November?
Laith Khalaf, Head of Investment Analysis at AJ Bell, said:
“A record jump in inflation has not moved policymakers at the Bank of England, who firmly maintain the mantra that price increases are transient. This does not mean, however, that they will be short-lived.
“The Bank expects inflation to hit 4% this winter and still be above 3% around the same time next year, so consumers’ pockets and money savings will go. still be hit hard. The Bank also acknowledged that the gas price crisis had increased inflationary risks by 2022.
“While savers will continue to wince as their money loses purchasing power, the continued low interest rate environment is a blessing for borrowers and a key factor in the rise in mortgage prices. UK housing.
“The markets are now forecasting an interest rate hike in the spring, but even if that happens, the base rate will only stay at 0.25%.
“The quantitative easing program will put more pressure on procedures, as the Bank has said it will not start reducing its balance sheet obligations until the base rate hits at least 0.5%.
“The direction of travel for interest rates is inevitably up, but the pace of change will be freezing, unless inflation really takes off and puts serious pressure on central banks.
“Markets generally remain quite optimistic about the prospect of a gradual tightening of monetary policy, both here and in the United States.
“The ten-year gilts yield currently at 0.8% and the ten-year US Treasury a little higher at 1.3%.
“Meanwhile, the stock markets are still buoyant, despite a recent oscillation precipitated by the Evergrande crisis. However, market participants can be surprisingly short-term in their thinking, and there may still be some upheaval when the policy tightening is actually announced.
“The start of November now appears to be the next tipping point for markets to catch their breath as the US Fed and Bank of England may present their tightening plans.
Fed Chairman Jay Powell has indicated that the QE cut could easily begin at the November meeting, and the Bank of England will finally have jobs data to look at that is not skewed by the leave scheme, which still supports the jobs of 1.7 million workers.
“Until then, central banks are still playing the same tune and investors are happy to keep dancing, regardless of what happens when the music stops. But if central banks signal a stricter policy in early November, we can expect fireworks. “