ICYMI: Bank of England interest rate decision live coverage
IGTV's Angeline Ong is joined by chief market analyst, Chris Beauchamp and Shard Capital's Bill Blain to discuss the impact of the Bank of England's decision to keep interest rates stable at 5.25%, as expected.
(Partial video transcript)
Impact of the Bank of England's interest rate decision
Chris Beauchamp: I suspect you might get a couple of people who may be breaking for a more dovish view. I think last night's Fed gives them that kind of air cover, if you like to say. Actually the outlook for the year next year has shifted quite a bit since we met last time. And we think maybe a certainly leave rates unchanged. Maybe even someone's brave enough to call for a cut fairly soon because of the inherent weakness in the UK economy.
Angeline Ong: Now, Bill, central banks have been known to get it wrong before. Clearly there are many out there that say that actually the Bank of England can stay higher, even though the Fed's indicated it will cut, that they can stay higher for a bit longer because it was so slow to the party. What's your call on this?
Bill Blain: There's a very limited history of successful central banks maneuvering an economy into a non-damaging safe landing. It's very rare and it's, you know, it may happen this time. I wouldn't be betting against it. But there's really three things that are going on here. A, the market is looking at sticky inflation. B, they are looking at interest rates and concluding that the kind of comments we saw yesterday in the Fed, the surprise pivot, means interest rates are going to fall quickly.
But there's a third factor, I think, that markets are missing, and that's the fact that central banks realised that over the last 30 years since the great financial crisis 2008, we've had massive distortion in financial markets, which has changed the way that capitalism has worked. And this has created lots of frothy speculative investment.
Central banks want to see the re-establishment of normalised interest rates, and that means interest rates that are real and positive. In other words, give you a positive return over inflation. So, even if inflation remains sticky and stubborn, that 3% to 3.5%, you need to be talking about interest rates remaining 1% to 1.5% above that. So, the actual ability of interest rates to come down is actually quite limited, and that's something I don't think the markets really factored on yet.
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