While many minds might be concentrated on the UK’s political melodrama which is playing out presently, I can’t help wonder how a leadership election for both the Conservative Party – and the next Prime Minister – would be impacting on interest rates, for example, if the Bank of England MPC was not independent from the government?
As many of us remember, the Bank was only given independence to set interest rates in 1997 when the Labour Party took office and – whatever you might think of the governments who’ve held power in the last 22 years – it has been one of the most sensible policy decisions taken during that period. Especially given the great deal of political uncertainty we have had since then.
What might a Chancellor have done with rate-setting power during the last three years, for example? Would they have cut BBR in the immediate period after the 2016 EU referendum as the Bank did? Might they have sought to use such a tool far more actively in order to curry favour with the public? Indeed, you have to step back and consider just how powerful a political instrument this could have been at varying times in the last couple of decades. How might the shape of the politics – and the country – been changed by such decisions?
The good news is that we will never know, but of course that doesn’t make the decision around Bank Base Rate any less important. Indeed, you might argue that it makes it more important, especially at a time when there appears to be so little certainty in other key areas, not least what might be about to face the nation come 31 October and beyond.
Just recently, Michael Saunders – a member of the MPC – suggested the Bank could increase rates “earlier than markets project” in order to keep inflation in line with its 2% target. And yet, part of me wonders whether the Bank/MPC would want to do anything like this, before the consequences of Brexit is far more certain?
Given the huge political change that this summer will bring, any change to interest rates – either up or down – might well have the effect of further destabilising the markets and, rather importantly, affecting consumer confidence. A move upwards, for instance, even if great swathes of borrowers are currently on fixed-rates, is going to result in a significant number of homeowners paying more for their mortgage repayments. This, at a time, when many are suggesting that if the UK leaves the EU with no deal, then we’ll be likely to see large increases in standard of living costs. Would the MPC want to inflict this potential double-whammy? I very much doubt it.
Given the nature of the MPC’s make-up, Saunders’ view here might be something of an outlier and unlikely to garner enough support amongst his colleagues to push through. The markets appear to have settled into a general consensus which says no interest rate rise in 2019, although clearly none of us has a clue about the impact of the Prime Ministerial appointment and his decision on deal or no deal Brexit by 31 October.
In terms of the mortgage advisory market, the continued uncertainty clearly presents an opportunity for advisers and firms to be on the side of the angels here. Able to deliver certainty in terms of most people’s single biggest monthly outlay and presenting a solution that could take them through the next two/three years in order to insulate consumers from the economic and political turbulence.
With the politics of the matter far from resolved, our sector’s ability to deliver in this very key area, and hopefully put clients’ minds to rest in terms of their financial stability at least, cannot be under-estimated. Let’s make sure our existing, and potential, clients know what we can do for them and where they can find the advice they need. Certainty might appear to be in short supply but it’s in our gift to offer it, at least when it comes to their personal finances.
Rob Clifford is chief executive of Stonebridge Group