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Weekly comment: Why is the Bank of England not raising interest rates?

Date: 08 November 2021

Weekly podcast: Market overview

This week’s host, Investment Manager, David Henry discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter. Among the topics discussed – Interest rates, COP26, and what markets will focus on next.

Market overview – Alan McIntosh, Chief Investment Strategist

Global equity markets continued their upward trajectory last week. On Friday, the broad US Index recorded its 62nd closing all-time high so far this year. (For those who are interested, the record is 78, back in 1995.) A good results season, with over 80% of US companies beating market expectations for earnings in the third quarter, has been a major factor supporting rising equity prices. Encouragingly, many companies have been able to pass on increased input costs to their customers through raising prices, thus preserving margins. Although by no means all companies have succeeded in doing this, it does suggest that in many cases, demand is strong enough to withstand higher prices. Friday also saw the release of strong US job numbers, coming after a recent string of disappointingly weak ones. This suggests that the US economy is picking up momentum once again. Finally, Friday saw the approval of President Biden’s $1 trillion Infrastructure bill after a long period of deliberation. This will see upgrades to roads and bridges, improvements to mass transit systems, as well as a programme to roll out a nationwide network of electric vehicle charging points.

The last Governor of the Bank of England, Mark Carney, was famously described as an “unreliable boyfriend” for flip flopping on messaging around interest rate policy. Clearly Andrew Bailey, the new incumbent, is borrowing from the Carney playbook. Having warmed up the bond market to a likely rise in UK interest rates last week by saying action was needed, Bailey was unable to persuade the Monetary Policy Committee. It voted 7-2 in favour of leaving rates as they are. The one notably absent name from the two members who voted for an immediate rate rise was none other than Andrew Bailey.

Speakers

Alan McIntosh

Chief Investment Strategist
Richard Carter

Richard Carter

Head of Fixed Interest Research

David Henry

Investment Manager

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