HiFX comments on the BOE continuing to put off raising interest rates, following MPC minutes
Chris Towner, managing director of FX advisory services at foreign currency specialists HiFX, said: “Central banks around the globe are happy to hold off from raising interest rates, fearing that even the smallest of rate rises could harm the already fragile economic recovery. This includes the UK, as the Bank of England put aside the fact that they expect the economy to grow by 0.9% in Q3 after the same rate of growth in Q2, and that the unemployment rate has dropped from 7.7% to 6% from a year ago, and instead focus on the few signs of inflation pressure.
“Lessons can be learned from Japan, who raised rates too quickly in the 1990s resulting in yet another economic slump and 20 years of deflation that they are still trying to exit. The outlook remains that central banks will continue to chase their tails looking for reasons not to raise rates, and this is reflected by their focus changing from the unemployment rate to now the slowing inflation rate, in terms of determining their decision to raise rates.
“Let’s face facts – the economic crisis of 2008-2009 was so severe that the Bank of England is rightly very sensitive to holding back these better times and this will continue for some time to come. This has put sterling under some much needed pressure and will give UK exporters some breathing space for now. However the UK economy is one of the better placed economies and therefore the fact that sterling is on the back foot may not last for long.”
