Should the BoE hike rates on June 22nd?

The Bank of England shouldn't be increasing rates on Thursday. In fact, it should be reducing them. Threadneedle Street needs to prove it is independent of thought rather than a "follower of fashion". The economy cannot withstand the predicted 0.5% increase. Individuals and businesses will suffer. Home repossessions will begin to increase as borrowers default on their loans. If rates are raised further on Thursday, the future is bleak.

I think we are at a tipping point where the Bank of England really needs to think about what it is doing with interest rates. What they have been doing is having no real effect on the inflation figures and all they are doing is creating pain for homeowners. Even saying this, I expect them to up the base rate again by another 0.25%. They are following what they believe is a tried and tested path and I can't see them deviating away from it. I think the Bank of England has handled the whole situation around the base rate terribly. 18 months ago they were telling us the inflation figures were transitory when they clearly weren't and they were far too slow to react to inflation when it was starting to run away at the end of 2021. Andrew Bailey didn't do a very good job at the FCA and he has followed that up by appearing to be out of his depth as the Governor of the Bank of England.

Should the Bank of England hike rates? No. Will they? Yes. The true impact of the previous rate hikes has yet to be felt, and there's no sign these rate hikes are working on inflation. The Bank of England has been shambolic, which is not surprising given that Bailey was Johnson's preference.

Considering last month's hotter-than-expected inflation and wage data, there are fears that the MPC will hike interest rates by 50bps on Thursday. That said, the all-important CPI inflation print will be released the day before Andrew Bailey and his fellow members make their decision on whether to raise rates. Another hot print could cement the fate of another few rate hikes, and see mortgage rates jump to fresh highs, causing another round of turmoil. However, a cooler-than-expected print could see the central bank opt to hold rates steady. It's worth noting that two members had voted to not hike in the last meeting, as the full impact of rate hikes is yet to be fully felt by the UK economy given the lagged effect of monetary policy. Even so, the Bank of England will most likely hike rates by another 25bps if CPI inflation comes in around consensus estimates of 8.5%, as they face increasing amounts of pressure from politicians to get inflation back down to their 2% target.

The Monetary Policy Commitee have got themselves into a right spot of bother. Raise rates and they risk tipping the country into recession, ease off and they could effectively be construed to be giving up on curtailing inflation. It reminds me of the joke about a tourist who asks for directions; the response being "Well sir, if I were you, I wouldn’t start from here". The sad fact is, the Bank of England was too slow and too meek when inflation first reared its ugly head 18 months ago. We are all now paying the price.

The effects of the most recent rate rises haven't even fed through to the economy yet, as there's at least a six month time lag. So I think the Bank of England should leave the base rate unchanged. Will they do so? Unlikely, as I think they're concerned about the money markets' reaction if they don't hike. That said, if Wednesday's inflation figures are better than expected, then it's possible. We might even see lenders cut their mortgage rates. But as things stand, my money's on a 0.25% increase to 4.75%.

What happens on Thursday lunchtime will depend on what happens Wednesday morning when the inflation figure drops. We are hoping to see at least a 6 at the start of the inflation figure, and if this happens, to have had a 5% decrease since the peak last October "should" be good enough reason for some calm hopefully. Obviously, having inflation still raging far higher than the UK's target figure of 2% isn't great but the Bank of England not acting fast enough in raising rates by a great enough amount initially has led to where we are now. On my wish list is calm actions, let's see if we get them.

On balance, it takes the biscuit that households are bearing the brunt of economic decisions outside of their control. Getting hammered each month doesn't undo the fallout from Brexit or fluctuating fuel costs. Will rates go up anyway? Probably, yes as the Bank of England have to be seen to be doing something about a situation that they aren't in control of.

If the markets are to be believed then a further rate hike seems sadly inevitable and lenders have already effectively now priced this in as if it had already happened. Unfortunately, the dogged pursuit of a notional inflation target by the government and Bank of England doesn't appear to have any degree of patience built in. Within the bigger picture, rather than continuing to hammer the same nail repeatedly it could be prudent and welcomed for the Bank of England to at least allow some time to assess whether the actions already taken have grasped a reasonable hold or whether the bigger picture does indeed need more hammering and nails to keep it straight. Sadly, and seemingly regardless of evidence or whether the impending inflation figures are deemed good, bad or ugly, it appears unlikely that a more cautious and rounded approach will suddenly be forthcoming.

This week's inflation data is going to be huge for how the rest of 2023 pans out. If inflation comes in higher than expected, we will likely see larger increases to the base rate and it will stay higher for longer. We are experiencing cost-led inflation and with rate rises so far impacting a smaller proportion of homeowners given a number are still within a fixed period, you do have to wonder what impact these hikes are having. I appreciate with other central banks raising rates we couldn't afford to be left behind due to the damage it could cause to the value of Sterling. However, with the FED pausing with further increases last week, this should take off some of that pressure. Questions marks still remain, though. We were too slow to react to inflation and steps should have been taken sooner, which has left the Bank of England chasing its tail.