6th August 2018
In a week that opened with only the third Brit in history winning the Tour de France, it seems somewhat fitting that we saw a marginal rate rise in the UK for the first time since 2017. On Thursday, the Bank of England (BoE) raised the Bank Rate from 0.5% to 0.75%, its highest level since 2009. Whilst this move was largely anticipated, the hawkishness of the BoE’s Monetary Policy Committee members was not, seeing them vote 9-0 to raise rates. However, the proceeding press conference did shed some light on why, with the banks head, Mark Carney, citing strong economic conditions as rationale whilst also raising its UK growth forecasts. Whilst it is hard to say whether this is a policy error at this stage, Sterling sold off; suggesting the market believes the BoE has made a folly… that being said, and despite Thursday seeing Carney suggest that a disorderly Brexit was not a key concern, today (Friday) he stated that the possibility of a ‘no-deal’ Brexit was “uncomfortably high”. If one ignores all of the vocal rhetoric, it very much appears that Thursday’s rate hike was largely driven by fear of the Brexit unknown, with the BoE increasing rates through worry of it being their last chance to do so ahead of a 2019 exit from the EU. With that in mind, and whilst there is uncertainty surrounding Brexit, it was made clear by Carney that the BoE will not rush rate decisions. This suggests rates will remain lower for longer, and whilst there has been an increase, it will likely be the only one this side of a March 2019 Brexit!
Elsewhere we saw the US Federal Open Market Committee leave headline interest rates unchanged on Wednesday, whilst also upgrading its economic assessment. Its Chair, Jerome Powell, stated that any further rate hikes will be in line with further economic expansion and stronger labour market conditions… leading the broader market to price in a further rate rise in the US in September. US data released today (Friday) went on to support this with unemployment decreasing to 3.9% and participation remaining static.
As an aside, on Thursday Apple shares climbed over 2.9% seeing it become the world’s first ever trillion dollar company. This came following the release of Apple’s third quarter results earlier in the week, seeing their strongest June quarter to date; driven by sales of iPhones, services and wearables. This is yet another sign that the long term ‘doom and gloom’ portrayed by the media over trade is not a true reflection of the market!!
Jonathan Wiseman, Investment Management Expert*
*Jonathan Wiseman is a Chartered Wealth Manager at Wealth at Work Limited which is a member of the Wealth at Work group of companies