ANDREW NEIL: Here are My Reasons to be Cheery as Interest Rates Peak

Despite the perpetual gloom of the British chattering classes, there are reasons to be optimistic as we head into spring and summer. To combat inflation, the Bank of England raised interest rates to 4.25%, the highest level in almost 15 years. But there are brighter days ahead.

Reason 1: Interest Rates Are Peaking

We are approaching the peak in interest rates, which is excellent news for homeowners with mortgages and small business owners with loans. While there might be another quarter-point rise, it is unlikely to exceed 4.5%. The markets are even pricing in a 0.5% cut in interest rates by year-end, and they will be falling by early 2024. Moreover, the UK government is already paying lower interest rates on its national debt mountain; ten-year Government bonds now pay under 3.2% while two-year bonds pay barely 3%. So interest-rate relief for the rest of us is on the horizon.

Reason 2: The Economy is Looking Up

The Bank of England has joined the Office for Budget Responsibility and other establishment enthusiasts in revising their downbeat economic forecast. Only a few months ago, the Bank predicted that the economy would be in recession this year and linger into 2024. Fortunately, it now does not think there will be a recession. Retail sales rose 1.2% last month and were revised upwards to 0.9% for January, suggesting that people are still spending despite the cost-of-living crisis. Even better, pub chain Wetherspoon is back in profit, and early signs point to a 0.2% growth in the first quarter of this year. There are, therefore, signs that the economy is growing and a recession is not imminent. So we might even do better than barely treading water this year.

Related Facts

• Inflation unexpectedly jumped to 10.4% last month.
• There were fears that the Bank would pause its rate rises due to the banking turmoil sparked by the run on California’s Silicon Valley Bank (SVB).
• The Bank of England has raised interest rates for the 11th consecutive time.
• Some people believe that interest rates will fall to 0% by 2026.

Key Takeaway

Interest rates are peaking, and the economy is looking up. These are reasons to be cheerful as we head toward summer. However, there may be some bumps in the road, and we shouldn’t be complacent about the risks of inflation, supply chain issues, and labor shortages. Nevertheless, there is a sense that we have weathered the worst of the storms and that the future is looking more positive.

Conclusion

The Bank of England’s decision to raise interest rates again has worried some people. But Andrew Neil sees reasons to be cheerful. Interest rates are peaking, and the economy is looking up: retail sales are up, and we might even see some growth in the first quarter of this year. While there may be some risk factors, such as inflation, supply chain issues, and labor shortages, the overall picture is positive. So, let’s put aside the perpetual gloom of the chattering classes and look forward to the summer with a sense of optimism.