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Modest rate rise by BoE seems a one-off muscle flex Neil Williams, Group Chief Economist at Hermes Investment Management, reacts to today’s Bank of England (BoE) rate hike decision: Today’s quarter-point rate hike shouldn’t raise eyebrows, and looks for now to be a one-off ‘muscle flex’ by the BoE, rather than the start of an aggressive tightening. What it does is reverse the post-referendum cut from 15 months ago, which, with activity broadly holding up, may have been an unnecessary safety-net. In the MPC’s eyes, it also gives them more rate ‘powder’ to use, should the economy later start to slow again. But this is of course circular and the Bank will be mindful that raising rates too far does not cause that economic downturn! Moreover, in the absence of a recovery in real wages - which have been squeezed for a decade - I doubt they will hike aggressively. Their hope is that productivity begins to lift from 2018, justifying higher wage claims. If it does, they could admittedly then get twitchy fingers. But one of two factors working against that is inflation which may have peaked. Should the pound plummet again and/or protectionist forces build, inflation will admittedly accelerate. But, it will be the ‘wrong sort’ – cost-push, rather than ‘feel-good’ demand-pull. This portends more to the inflation rises of the early 1980s and 1990s UK recessions, than the overheating of the late 1980s and mid-2000s. In which case, the inflationary flame may snuff itself out. 02/11/2017
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Johnny Weir, Head of Corporate Communications, Federated Hermes Limited
Rachael Dowers, Associate Director - Corporate Communications
Hannah Bellfield, Manager - Corporate Communications
Jake Rosenberg, Assistant Manager - Corporate Communications