Hiking interest rates again is wrong and damaging: deVere CEO

The Bank of England’s implied narrative that hiking interest rates is the only way to cool inflation is damaging and misleading, warns the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.

The warning from Nigel Green of deVere Group comes as BoE deputy governor Dave Ramsden suggested on Friday that the central bank will likely raise interest rates again next month, hinting it is the only way to sustainably rein-in inflation, which is currently running at 9.9%.

“However difficult the consequences might be for the economy, the MPC (the rate-setting committee) must stay the course and set monetary policy to return inflation to achieve the 2% target sustainably in the medium term, consistent with the remit given to us,” said Mr Ramsden.

But the deVere CEO insists: “I don’t buy the Bank of England’s messaging that the UK’s red-hot inflation – which is likely to get worse in the coming months – can only be tamed by hiking rates.

“Indeed, I believe that raising rates again and again is the wrong answer to the problem because inflation is primarily being driven by surging energy bills.

“The high prices of energy have been fuelled largely by international supply chain shocks, which interest rate hikes won’t fix.”

He continues: “Not only will further rate hikes not solve the underlying main problem, but they will also inflict further pain on households and businesses across the country at a time when they are facing soaring mortgage costs, credit squeezes and plummeting living standards.

“A recession worse than that experienced after the global financial crisis could be the result of hiking interest rates, the United Nations recently warned.”

The Bank of England is being prompted in part to further raise rates due to the agenda of PM Liz Truss and Chancellor Kwasi Kwarteng, who have set out an unflinching dash for growth.

“The Bank feels it needs to be hitting the brakes extra hard because the government is determined to keep hitting the accelerator for short-term political wins,” says Nigel Green.

He goes on to add: “It’s time to consider alternatives to exclusively hiking interest rates.

“More attention must be given to supply-side policies aimed at increasing long-term competitiveness and productivity; and fiscal policies, including lowering government spending which reduces aggregate demand and, therefore, inflation.

“In addition, as wage inflation is a significant driver of soaring prices, we need to put more emphasis on upskilling and widening the skillset of the labour market as we currently don’t have enough, or the right, skills for certain jobs.”

The deVere CEO concludes: “The narrative being promoted by the Bank of England and others that the only way to control inflation is interest rate hikes is misleading as it’s not the only weapon in the arsenal.

“It’s also damaging as hiking rates in this scenario can lead to a vicious and painful economic circle.”


Share on facebook
Share on twitter
Share on linkedin
Share on reddit
Share on email

Tell Me More