As markets react to the news that the Bank of England this morning voted eight-to-one on holding back the first interest rate hike, there is concern among investors that Mark Carney and co may have already waited too long.
Woolnough, manager of the M&G Optimal Income Fund, is among those scrutinising the BoE’s continued delaying of the move, and warned that there could be knock-on effects further down the line.
“Rates should pick up – I would have done it already,” he said. “The Bank of England have already missed an opportunity.”
While the central bank’s main reason for deferring the rise revolves around uncertainty over economic growth, Woolnough believes that not only can the UK economy handle a rate rise, unless one comes soon then inflation may get out of control.
“When interest rates have been put up in the past it has taken almost two years for unemployment to start picking up,” he explained.
“If the Bank of England put interest rates up today then it would take until 2017 for unemployment to start going up; if they wait until January then it will be 2018 before unemployment goes up. Furthermore, unemployment will not go sideways, it will keep going down until then, so we could see it drop below pre-crisis levels.
“The central bank is data-dependent but they have got to look forwards. They need to recognise that at some point the labour market will get tight, and when that happens we will have inflation problems – they need to act now to keep inflation low.”
Despite Woolnough’s view that interest rate rises are already late as it is, he still believes that they will come soon enough to have a determining influence on his portfolio, in which his duration levels are currently “around the lowest we have had.”
