Rates remain flat but underlying swaps have reduced enough in recent days to suggest that some minor cuts may be on the way in the short term. On a medium to long term horizon, could there be a muddier interest rate outlook than the one we have now? If Andrew Bailey was headmaster to his students on the MPC, he would likely haul them into his office for the mismatched communications they are currently delivering to the market. An old critique of the MPC was a group think mentality where the in-vogue consensus was not challenged, boy are we a long way from that now. In the press and on the university talk circuit the hawks and doves do battle on a near daily basis, with the hawks calling for us to hold steady on maintaining rates where they are for fear of further inflation and the doves insisting the economy is heading for a crunchy landing without further cuts. While we would encourage robust debate in private, the public lobbying only serves to confuse markets and reduce certainty, which in the context of another totemic budget on the horizon, creates discomfort for many.
(Harry Arnold, Director at Anderson Harris)
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