Interest rates: higher, for longer?

Date: 24 May 2023

Vicente Luckina Bunn

Isabel Albarran, Investment Officer at Close Brothers Asset Management comments about Bank of England’s interest rate decision.

Isabel Albarran

“Whilst it’s widely expected that the Bank of England will raise interest rates, we believe it’s likely we could see rates drive higher still over the coming months. The real focus today needs to be on the revised economic forecast, with particular attention being paid to the labour market. The Bank of England has consistently been too pessimistic with its employment forecasts, and upward revisions to the economic forecast will signal to markets how much further tightening still needs to be done. In addition, Isabel says: “While inflation is going to fall significantly this year, recent economic data has been strong, particularly across the services sector, with UK GDP forecasts being revised higher for 2023. This makes the case for a downward revision in the unemployment forecast, and further interest rate tightening. While recent labour market data showing early signs of weakening, unemployment is still below what the BoE believes to be the natural rate. We would certainly need to see further signs of a slowdown for the Bank to consider easing.”

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