Articles and Whitepapers

The Bank of England were not expected to move policy rates at today’s meeting so the focus for markets was on the updated quarterly forecasts for growth and inflation along with the accompanying minutes of the two-day policy meeting.

The Bank of England raised base rates by 25bp to 5.25% at yesterdays meeting, in line with a recently revised consensus which had been broadly split between 25bp or 50bp prior to the softer inflation and growth data over the past couple of weeks.

With unemployment at its lowest level for 50 years, inflation at a 40-year high and further interest rate rises on the horizon as the Bank of England celebrates 25 years of independence, we discuss the impact historically high levels of uncertainty is having upon the interest rate hedging process.

The successful start to the UK's vaccination programme is great news but the economic outlook remains highly uncertain so is it time for the Bank of England to take interest rates into negative territory?

The risks of a deflationary outcome remain very elevated. Our understanding of likely household responses is becoming more informed, particularly with regard to genuine uncertainty, precautionary savings balances being built (where possible) and the likely consolidation of credit related debt. Turning the tide on the risk of viral infection and saving lives is the driving policy of government, but by definition this just pushes another rising tide of shrinking demand onto the economy.