Bank of England’s first hike since 2023 unlikely to be last this year: deVere CEO
Borrowers hoping the Bank of England’s first rate rise since August 2023 is a one-off are likely to be disappointed, with a second increase before Christmas now a real prospect, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green come as the Bank raised Bank Rate to 4% from 3.75% on Thursday, after inflation climbed to 3.5% in September, well above the 2% target.
He says: “Most forecasters see December as a pause. I think they’re underestimating how uncomfortable the Bank is with where inflation is heading.
“Today’s move looks to me like the start of something, and I believe a second rise at the 17 December meeting is more likely than many expect.
“Inflation is still climbing. Fuel costs have jumped because of the conflict in the Middle East, the energy price cap is set to rise again this winter, and the Bank’s own projections have inflation pushing above 4% early next year.”
He continues: “Crossing 4% matters. Research published by the Bank last year suggests temporary price shocks are far more likely to become embedded in wages and prices once inflation goes beyond that level.
“The Bank has effectively told us where its danger zone is. If inflation is on course to cross that line within weeks, waiting until February means reacting after the damage has already been done.”
Businesses are already moving. The Bank’s own survey of companies shows firms expect their prices to rise 3.3% over the next year, and 68% are planning increases of their own.
“Firms aren’t waiting to see what happens, and neither can the Bank,” says the deVere CEO.
“The governor has said himself it can’t hold out for conclusive proof that higher energy costs are feeding through to wages and shop prices. By the time that proof arrives, it’s usually too late.”
The economy is also proving tougher than feared. Unemployment fell to 4.7%, and GDP unexpectedly grew 0.1% in August.
Nigel Green notes: “The economy is holding up better than most people predicted, and it gives the Bank room to act. Markets are already pricing in several more increases next year.
“If rates are going up anyway, moving in December could mean the Bank doesn’t have to take them as high in the end.”
Pressure inside the Bank has been building for months. Three members of the Monetary Policy Committee voted for a rise in both July and September, and the UK’s main central bank peers have already started tightening.
He continues: “I’m not dismissing the other side of the argument. A second rise so soon would be tough on mortgage holders, a couple of committee members remain unconvinced, and the Governor has been cautious throughout.
“Yet the Bank was slow to start, and I doubt it wants to fall behind a second time. Letting inflation run above 4% into the new year would be a far harder problem to fix than acting now.”
For savers, higher rates are likely to mean better returns on cash for longer. For borrowers and investors, it points to a prolonged period where the cost of money stays elevated.
Nigel Green concludes: “I believe the Bank is likely to raise rates again on 17 December. With inflation heading above 4% and businesses already putting their prices up, the case for waiting until the new year gets weaker every week.
“Anyone hoping today’s rate hike is a one-off could be in for an unwelcome surprise before Christmas.”