HomeBusinessMoneyMAGGIE PAGANO: Bank keeps us guessing on an interest rate rise

MAGGIE PAGANO: Bank keeps us guessing on an interest rate rise

Phew. Or should that be ouch? The Bank of England’s Monetary Policy Committee did the right thing in voting to hold rates at their historic low of 0.1 per cent.

But governor Andrew Bailey is getting whacked around the head by the financial markets for allowing them to believe that a hike was on its way.

Quite right too. Coming after years of Mark Carney, and his habit of playing the unreliable boyfriend with his unreliable guidance, one had hoped that Bailey would play more of the loyal husband.

Rates ruling: Bank of England governor Andrew Bailey (pictured) is getting whacked around the head by the financial markets for allowing them to believe that a hike was on its way

He has instead turned out to be more like the grand old Duke of York, as one leading economist noted, ‘happily marching markets up the hill to expect a rate hike only to need to march them back down again’.

But the markets don’t like surprises, which is why sterling and gilts went into a spin after the nine members voted by 7-2 to keep interest rates as they are. In contrast, the FTSE indices jumped on the news, relieved that higher rates would not be squeezing consumer demand, just yet.

The bottom line is that the Bank’s role in setting interest rates should not be a guessing game. The Bank should lead with clarity – and credibility – and any moves should be positive ones which reinforce monetary policy and the direction of travel.

Yet over the last few weeks, Bailey and chief economist Huw Pill have, through their loose talk about curbing inflation, led the markets to expect a rise.

While most of the City’s economists disagreed with their view – that higher interest rates might be necessary to dampen inflation – the markets had their antennae tuned in more closely to the central bankers.

Bailey and Pill knew full well they had sown confusion from the lively commentary they provoked with their hints.

So the question is why did neither of them try to change the narrative, and nudge the markets back to where they had been?

You might ask whether they wanted confusion which, as we saw, did prompt lenders to raise mortgage rates? 

What they have done instead is to ensure that investors and analysts – whose livelihood depends on their ability to make huge investment decisions based on future yield curves, many of them on our behalf – will distrust the central bank even more than they already do.

It’s a mystery why Bailey didn’t change tack. What’s particularly odd is that he himself did not vote for a rate rise.

Hmm… Is that because he changed his mind or got the tone of his earlier messaging wrong?

Or because he didn’t want to be in a minority when it came to the vote? As it turned out, the two hawks were Dave Ramsden and Michael Saunders, who also voted for an end to QE, as did Dr Catherine Mann.

What we do know is that rates will tighten next year. Bailey needs to get his act together and sort out the Bank’s communications strategy pronto.

The next few months look like being hairy in the face of rising living costs and more supply chain disruptions, however temporary these may be. We need a Steady Eddie rather than a Grand Old Duke.

Season of good tidings

Some promising news from Sainsbury’s, which saw a bounce back from last year’s losses to a decent profit for the 28 weeks to the end of September. 

Even more positive is word from chief executive Simon Roberts who says customers are returning to their pre-lockdown habits.

There’s a double whammy. Sainsbury’s market share in online sales is also growing. Roberts also says trading is looking good ahead of Christmas, despite fears of labour shortages and supply chain hiccups.

There are still massive shortages – and supply scale disruptions – but the chain’s logistics network is strong enough to cope.

Staff have been given Boxing Day off in thanks for a tough year. It’s a nice touch, and all shops will be closed. But no need to panic buy.

Go Bond

The Society of Motor Manufacturers and Traders reports that UK car sales dropped by a quarter compared with the same month last year to 106,000.

This is hardly a surprise; people are travelling less because of the pandemic while deciding which car to buy – petrol, diesel or EV – has left many consumers either catching the bus or dazed and confused.

Yet loss-making Aston Martin bucked the trend, doubling the sales of its DBX sports utility vehicle aimed at rich lady customers at £160,000 a pop. 

Money, as they say, doesn’t buy you taste. As any real driver will tell you, there’s only one Aston Martin to have and that’s Bond’s DB5.

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