The Scotsman Bulletin Wednesday August 14 2024 #InterestRates
Scotsman head of business Joshua King is joined by business correspondent Scott Reid to discuss the rise in the interest rate
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00:00Hello and welcome to the Scotsman's Daily Bulletin for Wednesday. I'm Joshua King,
00:12I'm Head of Business and I'm joined today by our Business Correspondent, Scott Mead.
00:16Good morning Scott.
00:17Hi there.
00:18Let's start with a look at our front page. We'll lead on Creative Scotland's warning
00:25that the country's arts industry is facing years of managed decline after it was targeted
00:31for new cuts weeks before it decides on hundreds of applications for long-term funding. Our
00:36correspondent Brian Ferguson has been across this story for the last year looking at the
00:40arts funding situation in Scotland and will continue to do so. We've also splashed with
00:45a remarkable and quite adorable picture of six sets of twins, all due to start the new
00:51school term in Inverclyde. They're pictured at St Patrick's Primary School in Greenock
00:55ahead of their first day at their respective schools. Now Scott, I'd like to talk about
01:01inflation and the news this morning that the annual rate of inflation has risen following
01:06months of decline. You've been across that today, so what do we know? What's driving
01:11the new figure?
01:12Yeah, it's been a few hours since we got the figures out and I can almost hear old Lance
01:17Corporal Jones saying don't panic, don't panic. I mean on the face of it, it's not good news.
01:22The rate of inflation is up for the first time this year and the rate at which prices
01:27are rising has been falling for some time now, if that's not a contradiction in terms.
01:31So we've got CPI, which is the Consumer Price Index, the main headline figure, measures
01:362.2% up from 2% in June. And remember back in June that led to the first rate cut, interest
01:43rate cut, in over three, four years at the start of August. So it's above the Bank of
01:48England's target. It's actually not quite as high as has been expected. Analysts have
01:52been thinking it'd be as high as 2.4%, 2.5% last month. And the good news in amongst all
01:57the data I've got in front of me, food price inflation is stuck at 1.5% and both the core
02:04and crucially services inflation are down. So the underlying picture is generally still
02:10pretty favourable, maybe more a blip on the road to generally lower inflation. Remember
02:15it did peak over 11% back in October 2022, so we're well away from that now. It's a much
02:20more stable level. And the rebound was generally driven or driven in part by a sharp drop in
02:27energy prices last July, which has kind of fallen out of the year on year calculation
02:31because inflation is a year on year measure rather than a month on month measure. So that's
02:35one of the main reasons. As I say, the core inflation down, food inflation is holding
02:40steady. So really, we shouldn't be hitting panic at all.
02:45So the message is don't panic. What will our readers see in terms of personal finances as a
02:49result of this?
02:50Well, there's not been much impact on mortgages and borrowings. Initially, this is more down to
02:55what happens on interest rates now. And you can still beat inflation quite comfortably with
03:00cash investments with cash savings products that can give you a rate of 4.5% 5%. So it's still
03:04well above the 2.2% inflation rate. The important thing now is what the Bank of England is
03:09going to do next. Now, as I say, the cut rates on the 1st of August there, that was a bit of
03:15relief for a lot of mortgage holders and borrowers down to 5% from 5.25%. There had been a
03:21slight chance that rates might have been cut next month. The next meeting's on the 19th
03:25September. That's not going to happen now. That's off the cards. The key dates that people need to
03:30put in their diary now are the last two meetings of the Bank of England's Monetary Policy
03:34Committee that take place this year. The first one's on the 7th of November, and the second on
03:39the 19th of December. And there's a good chance that things remain at roundabout the 2% level
03:45slightly above perhaps. We're looking at a further rate cut on the 7th of November. That would take
03:49things down by a quarter point to 4.75%. So a bit of relief for anybody who's got a mortgage or any
03:55sort of borrowings, any business with borrowings. There may be a second cut, which would be a third
03:59cut this year on the 19th of December. That's more of an outside bet. I would suspect that the
04:05Bank of England want to see more evidence. They're very conservative and don't tend to make any
04:11rash decisions. And they're probably looking more at a cut early 2025, a second cut. But I think it's
04:17good news, unless there's another shock, unless inflation does start to take off again, which
04:22nobody's hoping will happen, obviously.
04:25So that December meeting, you're right in saying the Bank of England are quite conservative about
04:30these things. That'll very much depend on what we see happening between now and December, won't it?
04:34Whether or not...
04:37It's worth remembering that the inflation data that came out today is for last month, July. So
04:40we're always looking back. The expectation is it's going to come back off the boil. So it could
04:45actually drop slightly below that target figure of 2% in the early months of 2025. And that gives the
04:52Bank of England greater scope to cut rates. But it's global issues as well. It's what's happening in
04:56the US. There's fears over recession, markets haven't been performing terribly well in the last week or so.
05:02And there are still a lot of geopolitical tensions and global concerns. So there's absolutely no
05:08guarantee these things. And the Bank of England do not react in any sort of panic, panicky way. So I
05:15think there's a good chance we'll see another quarter point cut either November, or possibly a
05:20pre-Christmas boost on the 19th of December. But a further cut, probably not likely until February,
05:26March next year.
05:29You're absolutely spot on. These things, they don't happen in isolation, do they? And we've got the
05:33American election, we've got recession, looking at recession in America, what could happen in
05:38Ukraine could be very dependent on what happens in America. And that obviously had a big shock impact
05:44on our energy prices, which, again, had that knock on impact into our inflation rate.
05:50Energy costs and those geopolitical tensions were what drove inflation up initially in 2022-23.
05:56There's a peak to over 11%, well into double digit territory. We're well away from that now. But who's
06:02to say that there's not another huge shock around the corner? The Bank of England only have a certain
06:07number of levers and measures at their control. And the number one thing is interest rates. And yeah,
06:14they've been high for a long time.
06:16Message for now, don't panic. And we'll see if things develop.
06:19Yeah.
06:20Great. Thanks for that, Scott. And you can keep an eye on scotstrom.com throughout the day for all the
06:26latest news and analysis on this, on the JERS figures, and where we're at in the transfer market as
06:32well for football. And remember, you can register and subscribe to get access to everything we do. And
06:37you can join us for tomorrow's Daily Bulletin as well. Thanks very much.