CONTRIBUTORS
Ben Russon, CFA
Lead Portfolio Manager & Research Analyst
Martin Currie
August saw the Bank of England hike rates for the 14th time in a row as equities sold off on the prospect of rates staying higher for longer.
Inflation data released during the month came in at 6.8%, down from a prior reading of 7.9% with energy bills helping to further moderate price growth throughout the period. Importantly, if we consider the most recent wage growth data of 7.8% it is now evident that real consumer purchasing power should be improving. Whilst this poses a risk to the stickiness of inflation, this is a promising inflection point for a consumption heavy economy such as the UK’s.
With the latest Bank of England hike bringing rates to 5.25%, economic data showing mixed signals and monetary policy makers in the US now seen to be taking a “pause”, many investors are taking the view that we are either at or very close to the peak in the Bank rate.
BoE chief economist Huw Pill summarised this outlook succinctly by comparing the profile of the bank rate to Table Mountain as opposed to the market implied expectation of a higher peak and sharper cuts. We would agree with this view given the various dynamics at play in the economy and that simply - as inflation forecasts suggest we reach 5% in October - that a bank rate of 5.25% is sufficiently restrictive given the diverging economic signals we are seeing domestically and abroad.
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