The Bank of England left interest rates unchanged at 5.25% – a 16-year high – on Thursday, fuelling more fervent calls from high profile voices for the central bank to cut rates at their next opportunity.
Nigel Green, the CEO and founder of deVere Group, one of the world’s largest independent financial advisory and asset management organisations, is one of those prominent voices leading the calls.
He comments: “For businesses, lower borrowing costs would help alleviate financial strains, enabling them to invest in innovation, expansion, and workforce development.
“The reduced interest expenses would also enhance profitability, supporting business resilience and competitiveness in an increasingly challenging operating environment.”
The deVere CEO continues: “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.”
Investors, too, have much to gain from a shift in monetary policy towards accommodative measures.
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.”
Furthermore, the monetary policy time lag underscores the importance of pre-emptive action by central banks to address economic challenges effectively.
“Given the lag between changes in interest rates and their impact on the economy, proactive adjustments are essential to prevent the onset of downturns and mitigate the risk of recession.
“By initiating rate cuts in a timely manner, the BoE can provide timely stimulus to the economy, cushioning the impact of adverse shocks and fostering sustainable growth,” notes Nigel Green.
Critics may argue that cutting rates could fuel inflationary pressures, exacerbating the ongoing inflationary concerns.
However, it’s essential to recognise that inflationary dynamics are multifaceted and influenced by various factors beyond monetary policy alone.
Plus, the BoE has the necessary tools and expertise to “manage inflation expectations effectively while supporting growth objectives through judicious rate adjustments,” says the deVere Group CEO.
He concludes: “Enough is enough. The time has come for the BoE to take decisive, bold action and begin cutting rates from 16-year highs at its next meeting.”
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