The Bank of England will not cut interest rates in June due to the general election, causing further economic damage, predicts the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations.
The prediction from Nigel Green follows Prime Minister Rishi Sunak calling a snap general election for July 4 and as the UK central bank had been widely expected to cut the interest rate from 5.25% at its meeting in June.
He says: “Sunak announced the election on same day that the inflation data was confirmed to be 2.3%, which was higher than the 2.1% economists had expected.
“By itself this would mean that the likelihood of a rate cut would be diminished.
“But with elections inherently bringing a degree of uncertainty, officials will not want to trigger volatility with a rate cut during the campaign.
“The BoE will also be keen to uphold its image as an apolitical institution. Cutting interest rates close to a general election could be construed as an attempt to influence the economic narrative, potentially favouring the incumbent government.”
The deVere CEO continues: “Therefore, we expect the rate to be held steady at the 16-year high until after the next government is announced.
“Even then, it’s not a given that the Bank will immediately move to begin to ease monetary policy.”
By choosing not to cut interest rates, the BoE will “further damage the economy,” says Nigel Green.
“Higher-for-longer interest rates further dampen borrowing and spending by both consumers and businesses. Without a rate cut, economic growth is going to remain tepid.
“For individuals with variable-rate debts such as mortgages, maintaining high interest rates means higher monthly payments. This reduces disposable income and overall consumer spending, slowing down economic momentum.
“Also, companies are likely to further delay investment decisions in a high interest rate environment, particularly when coupled with political uncertainty. This hinders job creation and innovation, dragging on the economy.
“It will also lead to more reduced affordability for homebuyers, cooling down the market and affecting related sectors such as construction and real estate services.”
Additionally, the global economic landscape is showing signs of recovery, with many advanced economies adjusting their monetary policies to support growth.
“The UK must not lag behind. Aligning with global trends ensures the competitiveness of the UK economy, attracting foreign investment and boosting export potential. A rate cut would signal the BoE’s commitment to supporting the domestic economy, encouraging confidence among businesses and consumers.”
The deVere CEO concludes: “We believe there’s no chance of a rate cut from the Bank of England in June – and possibly not until the third quarter of the year – causing extra financial misery for households and business and economic pain for the UK.”