After a gruelling week assessing the fall-out of the Russian banks on the banking system, Andrew Bailey, the Governor of the Bank of England, just wants to be left alone to read his Sunday newspapers, over a quiet pint. The last thing he needed was to be ambushed by Bull, anxious to get a bit of forward guidance on interest rates. In a firm, yet head-masterly tone, he tells Bull to ‘take a hike’.
In the absence of official guidance therefore, Bear offers his own penny’s worth, and concludes:
The Base Rate will be hiked from 0.5% to 1% by May.
Together with the planned increase in National Insurance, this should be sufficient to avoid an economic death-spiral that would emanate from out-of-control inflation.
Two-year mortgage rates will rise by 0.30%. Even so, demand to buy homes will remain robust.
Average house prices will increase by 3% over the year.
The spread between property and gilt yields is wide enough to safeguard investors from falling capital values.
In some property sub-sectors, there is still more scope for yields to compress.