Whilst next week’s interest rate decision from the Bank of England looks nailed on Susannah Streeter, head of money and markets at Hargreaves Lansdown, has warned that markets could be overestimating how many rises will come after that.

As of this morning, markets are pricing for interest rates of around 5.75% early next year.

However, Streeter pointed out that the path forward remains unclear, and the market may be overestimating the number of impending rate hikes.

The anticipation of rates soaring above 5.5% has already led to the withdrawal of favourable mortgage deals, which could severely impact the purchasing power of an estimated 1.3 million households looking to remortgage this year. Government borrowing costs have also surged, limiting its spending power ahead of potential elections.

Streeter explained” “There is a chance that inflation will fall back much more quickly than the markets expect.” She noted that recent PAYE data for May indicates a slowdown in pay growth, with monthly wages increasing by just 0.3%. Moreover, a recent report from KPMG and REC UK revealed that starting salaries for new recruits dropped to a 25-month low in May.

The upcoming monetary policy committee’s voting split will be closely monitored as a potential indicator of decisions in August and the autumn.

Streeter does not anticipate immediate interest rate cuts once the Bank of England decides to halt increases.

She cited persistent inflation threats, mainly due to the ongoing competition for talent across the job market.

The implications of Brexit have reportedly intensified this issue, especially in certain sectors such as healthcare, and this has contributed to the broader economic challenge of high numbers of long-term sick leave.

Streeter concluded: “With so many people too sick to work, jobs market tightness is expected to remain.”

Article sourced from https://theintermediary.co.uk/2023/06/bank-of-england-will-implement-further-rate-hikes-but-markets-may-be-overestimating-how-many-streeter/

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