And there were gardens bright with sinuous rills

Over the last couple of days two statistics have been reported that we really should take note of.  Firstly, unemployment in the UK dropped to 7.1%. Quite apart from the fact that this is good news for everyone in work and seeking work, it is important because it is a another step closer to the 7% unemployment rate that Mark Carney, Governor of the Bank of England, has said would be one of the preconditions for an interest rate rise.  Secondly, the Government has published its findings that over the last year, take home pay has risen in the UK.  Finally today we have seen that growth in the UK is at its highest since 2007, with an annual growth rate of 1.9%.

 

 

More people in work, and people getting paid more is the rich soil in which the seed of inflation grows. The strimmer of inflation, to stretch my analogy further, is interest rates.  So we seem to have taken another big step closer to the interest rate rise that we have known is coming for some time.  Higher interest rates are bad for the prices of gilts and corporate bonds, better for savers, and importantly will be of great benefit to defined benefit pension schemes and those purchasing annuities. However, I personally don't think that interest rate rise is coming imminently.  The green shoots of economic recovery have only just started to appear and like the daffs in my garden could be easily snuffed out by an icy blast. In my opinion, growth needs to be bedded in before it is reined in.  Comments from the Bank of England and Vince Cable seem to bear this out with the Governor playing down chances of an interest rate rise yet.   So we might have several months of cheap money, lower unemployment, and economic growth ahead. Everything in the garden seems rosy....

 

Matthew Phillips

Managing Director

Telephone: +44 (0)20 7893 3456
Email: getintouch [at] broadstoneltd.co.uk