Many investment commentators are suggesting that central banks such as the Federal Reserve, the European Central Bank and the Bank of England are making policy decisions on interest rates based upon unreliable data and forecasts resulting in mistakes.
Just this week the Bank of England forecast that UK GDP would be negative and only increased interest rates by 0.25% pa when many, including us suggested that we need a 0.5% pa rise to dramatically reduce inflation at the rates that the US has done. UK GDP then came in a +0.1% pa.
We disagree, if you think that the Bank of England, the Office for Budget Responsibility, and the Office for National Statistics are not talking to each other almost daily then think again. Central Banks will have already known that GDP was flatlining and could finally come in at -%, 0% or +0.1% pa. We believe the reality is that central banks are walking a tight rope with the need to cut inflation but not put economies into freefall by making borrowing so expensive both personally for mortgages, loans, and credit cards but also for business debt or business owners postponing raising capital for business development and expansion.
More pain to come we fear with economic slowdown and home repossessions and house price falls, but inflation things will settle down as higher interest rates and lower food costs will filter down during the Summer and Autumn period.