Carney Interest Rate Rises Not Solution

Carney Interest Rate Rises Not Solution.

Amid the Bank of England’s latest inflation and growth forecasts, Mark Carney, Governor of the Bank of England has damped down speculation that Bank of England base interest rates are unlikely to rise in the short term.

Growth forecasts by the Bank remain unchanged in 2014 at 3.4% and an increase in 2015 from 2.7% to 2.9%. Inflation remains stable and not rising dramatically although wage increase inflation has slowed to 1.35 in the first quarter.

Unemployment has fallen to its lowest level for 5 years at 6.8% yet huge concerns for an ever growing housing price bubble. This is still dominating the London housing market with some areas experiencing 20% + rises although most of the UK is still recovering at between 5%-8%.

Mr Carney also suggest that interest rate increases are not the solution to capping the housing bubble, nor is it the right time to increase interest rates when the economic recovery is still in its early stages.

Comment

Markets reacted indifferently to the news. Much of the “neutral” position taken by the Bank of England has already been priced in to markets. Sterling fell slightly against both the US dollar and the Euro. Bond yields fell back slightly (i.e. if you have fixed interest funds you may have seen a little capital growth).

Speculation has been mounting that rate rises will come in early 2015, we suggest an election is looming and whilst independent, no doubt whispers will filter through to the bank to leave rates after they are until after the general election in May 2015.

What does this mean for your money?

Cash investments – outlook poor for another year

Gilt and Fixed interest funds a marginal rise now, but we see capital values falling as we edge closer to an interest rate rise.

Stock markets – remaining expensive for the time being but there will be economic triggers such as a cut in the Quantitative Easing programme in both the UK and the US which will trigger a stock market correct. Our view here is to lock in your equity fund profits now and look for other markets. Now is not the time to invest in UK stock markets. Steady for a short time but expect a correction.