Page 23 - SA Chamber UK - September Newsletter- eBook

inflation, latest data from the Office for National Statistics showed the consumer prices
index falling to 6.7%. For context, it was 7.9% in June, since when falling food prices have
helped ease the pressure.

Against this backdrop, the MPC had to weigh up two scenarios – either the battle to tame
inflation needed to go on for longer, meaning more rate hikes. Or, there were enough
positive signs coming through, coupled with a fear that recession risk was mounting, to
suggest the battle was being won.

In the end, the MPC decided the glass was probably half full, even if it was too early to say
so definitively. The decision to keep the rate on hold at 5.25% was passed by a 5-4 vote,
which was the tightest margin for a long time.

Too early to celebrate

While borrowers will feel relieved, the BoE was at pains to stress that the hiking pause
was temporary. With inflation at 6.7%, it’s well-above the target of 2%, and doubts remain
as to whether efforts to dampen soaring prices have truly worked.

As the MPC declared in its official statement: “Monetary policy will need to be sufficiently
restrictive for sufficiently long to return inflation to the 2% target sustainably in the
medium term, in line with the Committee’s remit. Further tightening in monetary policy
would be required if there were evidence of more persistent inflationary pressures. ”

Where next?
For investors, a period of uncertainty looms as policymakers weigh-up their options, and
assess the impact of their decision-making.

By keeping rates on hold, the BoE has mirrored the US Federal Reserve’s train of thought.
Nothing is guaranteed of course, but the two central banks appear to believe their recent
rate hikes have paid off.

If inflation has indeed peaked, and if rates can start to come down – possibly in 2024 –
then investors will breathe a sigh of relief.

In the meantime, the message remains: stay invested and stay diversified.

Source 1: Bank of England, Monetary Policy Summary, September 2023

-By Alexander Joshi, Head of Behavioural Finance, Barclays Private Bank

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SA CHAMBER UK NEWSLETTER SEPTEMBER 2023