Prospect of a more hawkish MPC under Conservatives
Nick Dixon, Investment Director at Aegon UK, comments on today’s MPC interest rate decision:
“The Bank of England holding rates at 0.5% is unsurprising as there are few catalysts for a rate increase in 2015. On the contrary, the triple alliance of muted inflationary pressure, low wage growth, and sterling strength has put paid to this until at least 2016.
“Looking long-term however, the current yields on bonds show the market has underestimated the turbulence future rate increases could have on the economy. It will certainly be challenging for the new Conservative-led government to reduce spending or raise taxes, and with fiscal policy set to be looser than planned, more hawkish monetary policy may well be required to tame the threat of future inflation during this Parliament.”