Appearing before MPs this week, Vlieghe conceded the Bank’s models are “not that good” to predict the next financial crisis. Fair enough, if central banks were ever able to accurately predict a crisis, then the crisis might never happen.
Still, with the domestic economy seemingly remaining on track for growth – despite the derailing threat of Brexit talks – and inflation on the rise, could we be overdue a rise beyond the 0.25% base rate?
More pressure will come from the US, with the Fed last night hinting of a rate rise “fairly soon”.
For James Mahon, chief executive at Church House Investment Management, investors must keep fixed income portfolios in short-duration assets while the Bank of England remains in its current “irrational” state.
“It seems crass to me that with the economy growing so well for the bank to be proudly keeping rates at 0.25%,” he asserts.
“I find that very strange. It looks to me that the whole rates structure is distorting which makes for high risk from an investment point of view.”
Still, Mahon does anticipate rate rises this year, particularly given the rate cycle in the US.
“The Fed is talking about three moves this year, so I think we will follow though the Bank of England is terribly reluctant,” he says.
“The bank is concerned about the quality and longevity of the recovery and, how Brexit might affect us, but how long it can hold out against rising inflation is very questionable.
“Inflation is moving faster in the States, but it is moving fast here too and looks like it has further to go. It feels like the bank is probably going to be playing catch up with rates later this year and next year which is a dangerous game.”
As Portfolio Adviser pointed out last week, the full level of inflationary pressure underlying the latest 1.8% figure from the Bank could be more than is manageable without quick, decisive action.
Still, there is a threat that inflation could soon exceed wage increases, which in turn will hit consumer spending.
