Although the decision to pause interest rates has been met with relief, the Bank has been warned they need to “go further and commit to stopping the hiking agenda”, rather than just pausing it, an expert has stated.
The base rate announcement followed a surprise fall in inflation in August – despite rising oil prices, some weakness creeping into the jobs market, and the Federal Reserve in the US deciding to halt rate rises for the time being.
Many expected the base rate to rise, however, the surprise fall in inflation to 6.7 percent wiped this off the board.
Despite the slight relief for homeowners, the Bank of England made it clear that it’s still locked in a fight against inflation.
Rates could go up again in future, and at the very least are expected to hold at this level for a significant period until inflation is under control.
READ MORE: Interest rate rises ‘not at an end’ despite Bank of England freeze
Nigel Green, chief executive of deVere Group urged the Bank to “provide clear and transparent communication about its future plans” regarding the base rate.
He said: “We champion the Bank of England’s move to hold interest rates steady, but the central bank policymakers should go further and commit to stopping the hiking agenda, rather than just pausing it.
“The battle against inflation is gradually being won. Further squeezing already weak economic growth through making borrowing costs for consumers and companies down the line could leave long-term scars on the UK economy.
“Further stifling economic growth by resuming rate rises next time around will lead to yet more decline in investment, entrepreneurial activity, development, innovation – and therefore jobs and a decline in overall economic well-being.”
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He explained the Bank of England needs to stop base rate hikes, and not pause them as it typically takes about two years for the full effect of rate hikes to filter fully into the economy.
Moreover, clarity in communication about the policymakers’ future intentions is “paramount to instil confidence and predictability in the financial markets and the broader economy.”
Mr Green continued: “While a pause can provide a breather, it doesn’t remove the uncertainty surrounding future rate hikes.
“Businesses and consumers need stability and predictability to make long-term decisions, and the constant threat of rate hikes can deter investments and spending.”
If the Bank of England continues to be vague, it will create confusion in the financial markets and among the public, he warned.
Even if the Bank decides to keep interest rates the same, or resume increasing them, it’s “imperative they [Boe] provides clear and transparent guidance on its future plans”.
The deVere CEO concludes: “The UK central bank must consider stopping this current rate hike cycle altogether and provide clear and transparent communication about its future plans.
“Clarity in monetary policy is not only essential for financial markets but also for businesses and consumers who rely on stable economic conditions to plan for the future.”
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