The Bank of England’s recent decision to pause interest rate hikes has been met with relief, but it should go further and stop hikes altogether, warned the CEO of a leading independent financial advisory and fintech.
The UK’s central bank kept rates steady at 5.25% on Thursday, having not raised rates for the first time in 15 meetings.
“We champion the Bank of England’s move to hold interest rates steady, but the central bank policymakers should go further and commit to stopping the hiking agenda, rather than just pausing it,” said Nigel Green, chief executive of deVere Group.
“The battle against inflation is gradually being won. Further squeezing already weak economic growth through making borrowing costs for consumers and companies down the line could leave long-term scars on the UK economy.
“Further stifling economic growth by resuming rate rises next time around will lead to yet more decline in investment, entrepreneurial activity, development, innovation – and therefore jobs and a decline in overall economic well-being.”
As such, this is now the time for the BoE to stop, not pause, interest rate hikes, said Green.
“The time lag for monetary policies is notoriously long. It typically takes about two years for the full effect of rate hikes to filter fully into the economy – and this is where we are.
“We’re now beginning to see the drag effects on the economy with households and businesses becoming considerably more cautious,” he said, adding that the case for stopping rate hikes from now is compelling.
Clarity is paramount
Moreover, clarity in communication about the policymakers’ future intentions is “paramount to instil confidence and predictability in the financial markets and the broader economy.”
Green explained that while a pause can provide a breather, it doesn’t remove the uncertainty surrounding future rate hikes.
“Businesses and consumers need stability and predictability to make long-term decisions, and the constant threat of rate hikes can deter investments and spending.
“The Bank of England’s communication regarding its interest rate policy has been somewhat opaque in recent times. This lack of clarity has created confusion in the financial markets and among the public.
“It’s imperative that the central bank provides clear and transparent guidance on its future plans, whether it intends to hold them steady or go back to hiking.”
The deVere CEO concluded that the UK central bank must consider stopping this current rate hike cycle altogether and provide clear and transparent communication about its future plans.
“Clarity in monetary policy is not only essential for financial markets but also for businesses and consumers who rely on stable economic conditions to plan for the future.”