The Bank of England’s monetary policy committee does not meet until June 22 but that doesn’t mean there’s any let up in concerns over higher interest rates.
This week sees the US Federal Reserve making its latest base rate decision.
Susannah Streeter, head of money and markets at business consultancy Hargreaves Lansdown, says: ‘’To pause or not to pause – is the big question investors are mulling about the intentions of Fed policymakers ahead of the crunch meeting this week. They’ve taken up arms against a rising sea of inflation by hiking rates at the fastest pace in 40 years, but with signs that the economy is shuffling off into a potential recession, the expectation is that they are likely to keep rates on hold.”
The latest US inflation data out this week could create further uncertainty across the Atlantic – especially if, as in the UK, headline inflation doesn’t head down quite as fast as expected, and core inflation, stripping out energy and food prices stays elevated.
But other figures for production and services in the US suggest that the Fed may take a pause.
The S&P 500 – the US key stock market indicator, a little like the FTSE 100 here in the UK – has become a bull market, up 23.1 per cent from its previous October high, pushed up by optimism that the interest rate cycle is ending and particular interest in tech stocks.
So does all that mean that Europe generally and the UK in particular will follow suit? Possibly not, Streeter warns.
She says: “While a pause is being factored in for the Fed, European central bank policymakers are not expected to veer away from the path of rate hikes, anxious that inflation still risks becoming embedded in Eurozone economies.
“The European Central Bank is forecast to hike rates by 0.25 per cent on Thursday with another rise being penciled in for July, despite signs of slowing growth and Germany dipping into recession. The Bank of Japan is expected to keep rates on hold this week, and its loose monetary policy intact, as wholesale inflation slowed for a fifth consecutive month.”
Another prominent analyst – David Hollingworth, of broker London & Country – is similarly pessimistic.
He told the BBC earlier this week: “It’s been pretty relentless for the last couple of weeks. We’re back to that phase of you can’t hang around if you are looking at a fixed rate. Unfortunately I think this week we may still have to see more of that happening.
“But hopefully those rates will just start to find a level and we’ll see things start to calm down in the near future.”
The feverishness in the UK market has been boosted by HSBC’s surprise decision last week to withdraw all its mortgage deals for new customers, anticipating a Bank of England base rate rise later this month.
In response Santander, Clydesdale Bank (part of Virgin Money group) and Saffron building society have all withdrawn mortgage products temporarily ahead of relaunches with new prices, and many analysts expect more to follow suit.
