Bank of England unlikely to cut interest rates anytime soon

The Bank of England is unlikely to cut interest rates anytime soon, says the CEO of one of the world’s largest independent financial advisory and asset management organizations.

The prediction from deVere Group’s Nigel Green comes as the Bank of England’s Monetary Policy Committee (MPC) announced it has voted to hold the base rate at 4.5%, following a cut at February’s meeting.

He says: “Those hoping for imminent rate relief are, we believe, in for disappointment.

“Inflation, which unexpectedly rose to 3% in January, remains a concern. More importantly, wage growth is proving stubborn, holding at 5.9%—far too high for policymakers to feel comfortable about cutting rates.

“The conditions for rate cuts are not in place. Wage growth at this level means consumers are still spending, businesses are still facing higher costs, and inflation risks remain embedded. Investors need to adjust accordingly.”

Financial markets have been pricing in a series of rate cuts this year, but that optimism is misplaced.

“Investors who assumed a quick return to cheaper borrowing costs will need to rethink their strategies,” notes the deVere Group CEO.

“Should this be the case, sectors that had rallied on the prospect of lower rates, particularly those that rely on credit-fuelled expansion, could now face renewed pressure.

“Real estate, tech, and high-growth companies are particularly exposed. Meanwhile, defensive stocks, high-yield assets, and dividend plays remain attractive in a higher-for-longer rate environment.”

He continues: “Currency markets, too, will respond. If the UK keeps rates higher for longer while other economies move towards easing, the pound could strengthen—a potential headwind for exporters but an opportunity for those with overseas investment interests.”

For businesses and households, borrowing costs are not about to come down, forecasts deVere.

Mortgage holders, especially those on variable rates or due to refinance, should prepare for continued elevated repayments. Hopes that cheaper mortgages are just around the corner are likely to be misplaced. Until wage growth slows, the pressure on housing affordability will persist.

Nigel Green goes on to add: “We believe the most important number right now is not inflation—it’s wage growth. That’s the real roadblock to lower rates.

“For investors and businesses alike, this is the single most important metric to watch. Until wage growth shows clear signs of slowing, the Bank of England will not feel comfortable cutting rates—and nor should it.”

He concludes: “It seems optimism that the Bank would cut rates throughout the year is likely to be misplaced. Wage growth can be expected to keep the door to rate cuts firmly shut.”