Cascade Commentary

“The North looks outwards” says Carney at The Great Exhibition of the North

Bank of England Governor, Mark Carney, praised the North of England for its “proud tradition of innovation and openness” during his keynote speech delivered at the highly coveted Great Exhibition of the North on July 5th. Drawing upon the parallels between the “first wave of globalisation” and today, Carney laid the way for the great opportunities present today at the onset of the 4th Industrial Revolution where “the customer…will reign supreme”.

Quoting recent economic data, Carney depicted a healthy UK economy, with a notable bounce-back in Household Spending set against a backdrop of a persistently strong labour market where the rate of unemployment has reached record lows. Despite this uplift, inflation is expected to remain high in the near term due to higher energy prices, but importantly, the effects of the devaluation of sterling in the aftermath of the vote to leave the European Union (EU) are starting to wane.

Unlike the UK’s strength amidst high uncertainty, the global economy has been mixed. The US economy has remained strong but countries in emerging markets alongside those in the EU have suffered from a slight slowdown. With this in mind, Carney warned that the first wave of trade tariffs enacted by the US economy has signalled the “growing possibility that trade uncertainty could crystallise the longstanding risks of a snap back in long-term interest rates, increased risk aversion and a general tightening in global financial conditions.”

Of interest to most in the room was Carney’s view over interest rates and whether a rate rise could be reasonable to expect over the coming year. Savings rates have been broadly rising over the last three months in anticipation of a further increase to the UK’s official Bank Rate, currently set at 0.50%. Personal savers can earn 1.70% Gross/AER on a 95-day notice account, up by 0.20% since earlier in the year, while fixed term bonds are now offering 2.05% Gross/AER on a 1 year term, up by 0.15% since the start of the year. Corporate and Charity savers are also seeing increases in interest rates, albeit these are very slight in comparison to the increases seen in Personal rates.

With reference to an increase of 1% less than pre-referendum projections in 2016, Carney stressed the continued need for a careful balance to be struck between returning inflation to target and the support to jobs and activity given through a looser monetary policy. Expectations for a rate rise are presently based on predictions that a “smooth transition” will be achieved during the UK’s exit from the EU. While this is the objective of Prime Minister May and her cabinet, recent resignations cast doubt over the ability for this to be realistically achieved.

Nevertheless, in such a scenario whereby the UK does smoothly exit the EU, Carney outlined that “an ongoing tightening of monetary policy over the next few years would be appropriate to return inflation” to its 2.0% target. While a large increase is not expected to occur, it seems reasonable to think, particularly following the increases already seen in headline interest rates offered by the market, that Bank Rate likely move up by ten to twenty basis points over the course of the year ahead.

Here at Cascade we will continue to monitor our cash dataset, the largest in the UK market, and shall keep our clients abreast of the best rates available within their chosen parameters. Should you wish to learn how we can help you, do give us a call and we’ll be happy to discuss your options.

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