11th May 2018
Before commencing my fortnightly missive for our newsletter, I thought I’d wait and see whether the Bank of England Monetary Policy Committee had decided to keep interest rates on hold or whether Mr Carney and his cronies had experienced a sudden surge of adrenaline and actually committed to what they’ve been threatening for the last 12 months or so. With inflation having eased back (as expected once all the adjustments to the exchange rate following the Brexit referendum had filtered through to the shops, petrol pumps, etc.), unemployment remaining at record low levels and economic output as good, if not better than ever (I noticed this week that the top 150 companies in the UK are doing very well at the moment, thanks to the exchange rate – I always said there’d be winners and losers with the Brexit referendum!), I personally had expected rates to remain the same. And behold, my expectations were met. But I am increasingly irritated by the ‘threats’ the Committee imply, yet never execute. People are being conditioned to expect an imminent rate rise, which logically will make them cautious – the Sword of Damocles never far away!
In the past few months we’ve had sales fall through because mortgage deals have been ‘pulled’ at the last moment due to lender’s budgeting for a rate increase – that never came. We’ve sold properties for landlords on the back of interest rate rise expectations that would make the continuation of renting either uneconomic or neutral (since the tax rate changes that have taken place) yet rates have remained the same and rents have risen to the extent any small future rent increase could have been met. An unnecessary and costly exercise for all. We’ve undertaken viewings with would-be buyers who make low offers because they say “interest rates will rise and property values will fall…” I don’t recall that happening when interest rates were at 10% then 11% and even higher, and house prices were rising at 15% per annum! Such misdirection never helps anyone, only serving to instil fear and anxiety – a problem all too obvious in the UK at the moment with the socio/political problems we hear and read about every day.
I appreciate the function of the Committee is to prevent a repetition of the ‘boom and bust’ periods our economy has faced in the past, by easing the peaks and troughs through a ‘monetary policy’; raising interest rates to quell inflation and providing quantitative easing to stimulate growth. But with the wealth of experience the Committee members have (?) their forecasting leaves much to be desired. Whether they rely too heavily on the 12 agents of the bank around the country who are sending the Committee mixed messages, or the data they are looking at is ‘out of date’ (a common problem I suspect) I don’t really know. But for professionals who specialise in judging the state of the economy, the methodology of drip-feeding the public with negativity that ultimately proves unfounded is poor, in my opinion.