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BoE must ‘do right thing’, cut rates in summer

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​The Bank of England must not be tempted to use a smaller-than-expected drop in inflation in March to delay interest rate cuts further, warned the CEO of a leading independent financial advisory and fintech.

The UK’s annual inflation rate fell in March for a second consecutive month, dropping to 3.2%.

“The latest data is slightly higher than expected, but the overall outlook for inflation is positive,” said deVere Group’s Nigel Green.

“We hope that, despite the last stretch to hitting the Bank of England’s 2% target being harder and slower, overly cautious officials will not see this as yet another reason to further delay rate cuts.

“They must begin to bring down the historically high rate of 5.25% from June onwards. No ifs, no buts,” he said.

Bank of England governor Andrew Bailey told an International Monetary Fund event in Washington that, “in the UK we’re disinflating at what I call full employment… Our judgement with interest rates is ‘how much do we need to see now to be confident of the [disinflation] process’.”

The deVere CEO noted that Bailey and his team need to hold their nerve and be proactive, saying this summer is the time for the central bank to act decisively and promptly.

BoE inaction

“The Bank of England failed with its inaction at the start, passively standing by for too long when prices were already starting to surge,” Green said.

“It mustn’t fail now with adherence to a restrictive monetary policy which is exacerbating the challenges faced by firms and households across the United Kingdom.”

​Earlier last month, Green explained that households stand to benefit significantly from a rate cut, as lower mortgage rates translate into reduced monthly payments, freeing up disposable income for consumption and savings.

“Additionally, lower borrowing costs make homeownership more accessible for aspiring buyers, thereby stimulating demand in the housing market.

“By easing financial burdens on households, a rate cut would bolster consumer confidence and spending, driving economic growth from the ground up,” he said.

Investors, too, have much to gain from a shift in monetary policy towards accommodative measures.

Green said that lower interest rates tend to fuel demand for risk assets, such as equities, as investors seek higher returns in a low-yield environment.

As equity markets thrive on the prospect of easier monetary conditions, “a rate cut by the BoE would help drive stock prices and unlock investment opportunities across various sectors.”

The deVere CEO concluded that, “the Bank of England mustn’t be tempted to delay rate cuts any longer. They must do the right thing and cut from June onwards.”