Transcription
So, Howard, good morning to you. Thank you so much for being with us. Just, just lay out for us, if you can, your concerns about consumers and businesses may well be facing in the coming weeks and months as this war goes on.
Yes, unfortunately, we go into this in not a particularly good position because our inflation rate was already somewhat higher than in the rest of Europe. The reason that's significant is that it means that the Bank of England can't be too relaxed about what's going on on energy prices because there is a risk that inflation takes off as it did in in 2022 where we are. And so we're in a worse position than other countries because we begin in the wrong place. Therefore, the markets are thinking that the Bank of England is likely to put rates up, which, of course, will slow down the economy more.
Um, and that's why I think the our forecast as international forecasters are saying that the UK will face a nasty combination of higher inflation and possibly even a recession. And that's not a very comfortable place to sit. It's certainly not.
Let's just sort of situate ourselves, Howard. Before this war began, lots of talk about an interest rate cuts on the 19th of March and then later on in the year. And now we find ourselves, well, they held on the 19th, didn't they? But now you're thinking that the next decision may well be an increase and then another increase in the year.
Yes, I think that the likelihood is that the Bank of England will stay put for the time being. Unusually, at the last meeting, the Monetary Policy Committee, which has nine members, and they often vote differently. Um, and usually it's 5-4 or 6-3 one way or the other. For once, it was 9-0 in favor of doing nothing. So, they were somewhat frozen, I would say, by what's going on. Which is not, I think, uh, quite not not surprising, exactly. But the markets think that there are going to be four interest rate rises, so four quarter percent rises between now and the end of the year. My own view is that somewhat exaggerated. If you look at what the Bank of England is saying at the moment, they are saying slightly different things as they always do, but the general balance of view would mean to me seem to me, I mean, that maybe interest rates go up by a quarter or a half by the end of the year, but not by a whole 1%, which is what the financial market seem to be expecting.
Question about the markets in a moment, Howard, but just a a thought about those people who are looking at interest rates, perhaps people looking to remortgage, perhaps people to get their first mortgage and and advice what they should do, thoughts about what may happen?
Well, unfortunately, I think the a million or so people who are needing to refinance their mortgages at the moment, they're facing a very tricky choice because they can fix their rate for two or five years, but it's going to be at a number which is higher than they were looking at before. So, it's going to be more like 5% than the 4% or 3.8% they were looking at even just a few weeks ago. So, I guess, unfortunately, um, it's a tricky choice. If you go variable rate, then you're paying probably about 7%. So, I think if you have to remortgage, you're probably just going to have to live with that 5% because it's it's better still than just keeping on with a variable rate mortgage, which I think will be even more expensive. So, it's not a great position, but I feel that that's probably what you have to do.
And so, I would I suppose for context it's worth thinking about interest rates and how people were able to get such cheap mortgages a while ago. That that was an unusual moment, wasn't it, when interest rates were were quite so low and people were able to get those really, really low low mortgages.
Yes, I think we've had settled though into a position that looked sustainable to me because, you know, inflation was coming back under control. It wasn't back down to 2%, unfortunately, but it was coming back under control and it looked as if the Bank of England would be able gradually to ease. And in those circumstances, the banks can afford to lend at, you know, 3 to 4%. So, I don't think that was an unsustainable position. And I I think too, you know, we have to recognize that we're in a very odd situation at the moment with high degree of geopolitical uncertainty. I don't need to tell Sky News that, but uh, you know, so it is a very unusual situation and I don't think that people were I don't think it's impossible that we go back to those lower rates because if we keep inflation under control, that's where the rates could easily settle. It's not back to that.
Um, a question for you, Howard, about some of what we've heard coming out of the United States. And I wanted to get your sense of of what we've heard from Donald Trump, who seems to be posting on his social media accounts as markets close and then posting again before they open. Some of you accuse him of market manipulation. A huge bet was made when he made a statement about the war on Iran on the markets, on oil prices. What's your sense of what has been coming out of the White House? And are they manipulating the markets?
Well, that would be a big claim to make. I think if I were the regulators in the US, if I were the SEC, which looks into these things, I would be looking very hard at the behavior trading behavior before that last announcement, which did seem to move the markets rather quickly. I mean, that's what regulators should be doing. They they should be accessing all of the trading information and looking as if it looks as if it was so unusual that it was based on insider information. So, I think that's a very serious point that really should be looked at and I hope that the SEC is doing so. I think before you've done that kind of investigation you know, I wouldn't be prepared to argue that there was market manipulation going on. Sometimes from my experience as a regulator, what looks like market manipulation sometimes can just be people having a bit of luck. I think it's bit hard to be determined about that, but certainly the number of statements being made and the contradictory nature of them is not helpful from a market point of view. So, you've had very large amounts of volatility and that in itself is damaging.
Yeah, some people got very, very lucky, as you say, but I I appreciate you're not willing to to quite go there, Howard, but in your [snorts] experience, you've talked about the markets and and the volatility there. Have you ever seen a time like this where it's it's felt quite unstable on the market?
No, I mean, the markets at this point, let's face it, they're a derivative of what's going on in the war, you know? It's not like the financial crisis of 2008 where what was going on was driven by imbalances within the financial sector itself. The the markets were creating the the disturbance, if you like. This is not that position. The I don't think financial markets were fundamentally out of balance when this crisis started. You know, they could be argued that there are some worries in the private credit market, etc., but it wasn't a position where people were saying, you know, there's a financial crash on the way here. So, the markets are simply reacting to what's going on actually on the ground. And frankly, they don't have any more wisdom about that than you or I do. You know, whereas in if if it's a financial crash, you know, you can go to Goldman Sachs and Morgan Stanley and say what the hell's going on and they know a certain amount. This time, I don't think they know any more than anybody else because it's a completely unusual and highly volatile situation. So, I don't think we should be looking to the financial markets for insight really into, you know, you can look at prices all you all day long, but it won't tell you whether the straits of Hormuz are going to reopen or not.
No, it won't. So, Howard, look, some some governments are telling their citizens to change their behavior. Do you think that this government should be asking citizens to to change behaviors in some ways, sort of hedging against the what may be coming?
That's a tricky one for governments to do, but if you look around the world, you can start to see governments doing things to moderate demand, you know, that people are looking at having cars filled up on the road only, you know, if it has an odd number or an even number at the end. Our new numbering system makes that quite complicated for us. You can see people trying to encourage people more to use public transport more than their cars, etc. All over the world, governments are wrestling with how to try to dampen down demand so as to reduce the impact of these supply constraints. And I wouldn't be surprised to find if this crisis continues in the way it is, that the government will have to do something like that. It won't be popular. But, you know, they'll be able to quote a lot of other countries doing similar things.
Howard Davis, really good to speak to you this morning. I appreciate your time and your expertise, as always. Thanks. Have a good day. Thank you.