What the press dubbed as “Super Thursday”, originally for the dump of data from the Bank of England, but as it turned out was an apt description for a momentous day for English cricket. Australia bowled out for 60 runs before lunch in an Ashes test.
Focusing back onto the events away from the cricket pitch, the minutes from the latest meeting of the Bank of England rate-setting committee were released, along with the inflation report as well as the latest UK interest rate announcement. Interest rates, to no surprise remained unchanged for another month. The minutes revealed that once again Ian McCafferty believes the time is right, and voted in favor of an immanent rate rise. Following on from the minutes, Mark Carney later in the morning, discussed the Bank’s latest inflation report and the state of the UK economy. Mr. McCafferty appears to remain very much at odds with the rest of the committee, as head of the Bank of England continued to dampen expectations for a rate rise any time soon. The inflation report highlighted the combination of a stronger pound and weaker oil prices continue to put a lid on inflation expectations. The recent uptick in hourly earnings should in theory lead to a rise in inflation expectations, however with households still recovering from the excesses of the last decade it may still be a while yet before the money finds its back into the economy.
We have consistently, over the past year, played down what we believe to be the possibility of a rise in interest rates in either the UK or across the pond. We continue to believe that the likelihood either central bank will move on rates, despite a desire to, remains slim in the coming months. Any move on rates, when it does come, in our view will also be marginal.
What does this mean for the saver in the foreseeable future? The hunt for yield will continue. This should mean equities will continue to attract capital, emerging markets offer higher risk but with that higher yields. Gilt prices rose as more weight was attributed to the inflation report than the fact that Ian McCafferty voted in favor of a rate rise. Equity prices in England started the day slowly on the back of weak finish in America but recovered as the day wore on.