Brexit and global growth concerns force Bank of England’s hand on interest rates

Russ Mould
20 June 2019

“With virtually every other central bank in the world taking a softer line in 2019 it would have been remarkable had the Bank of England taken a tougher stance on monetary policy. The 9-0 vote to leave policy unchanged is therefore perfectly in keeping with the concerns that the Bank continues to express about the economic implications of Brexit and wider concerns over global growth,” says Russ Mould, investment director at AJ Bell.

“Australia, New Zealand, Chile, India and Russia have all cut interest rates this year and the Federal Reserve continues to lay the groundwork for looser policy.  Markets now think there is a 100% chance of a rate cut from the US central bank in July, with a one-third chance of a half-point reduction.  The European Central Bank also seems to be preparing further monetary stimulus. 

“The chances of the Bank of England looking to join Norway and the Czech Republic among those who have increased interest rates in 2019 look pretty slim, especially as any unexpected tightening of policy could give sterling a boost and perhaps hamper exports at what remains a delicate time for the UK economy.

“At least the dovish stance will be good news for those people on variable rate mortgages, although savers are likely to be less pleased. Interest rates on cash accounts have been so low for so long that cash savings are going backwards in real terms as inflation continues to outstrip savings rates. 

“This in turn may explain why global stock markets have put on a spurt this week, in the view that central banks are more likely to cut interest rates and returns on cash than increase them. That has dragged down yields on fixed-interest instruments such as Government bonds and left savers will few options when it comes to finding income, with the stock market in some ways the default choice for those who are hoping to protect their savings from even the lowly rate of inflation that we have today.”

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