The Bank of England has raised bank rate to 4.25% which will create howls of anguish among mortgage holders. The US Federal Reserve also raised its rate. But with UK inflation still above 10% p.a. it is quite justified in my view. We do need to get back to reality with real interest rates, i.e. they should be at or above the rate of retail price inflation. At least PM Rishi Sunak has made it his top priority to clamp down on inflation. Let us hope he sticks to it.
High interest rates will certainly put a damper on stock market investment but the short-term pain is worth it. As I suggested in my comments on the budget, the probability of inflation falling to 2.9% by the end of the year is a grossly optimistic forecast.
We also now have sight of Rishi Sunak’s last tax return. The prime minister paid £325,826 in capital gains tax and £120,604 in UK income tax in the last tax year. Good for him is all I can say. He clearly has a lot of investment holdings but might have done better with his tax planning. However he has contributed to the UK exchequer so we should not complain. But the politics of envy always rule in such circumstances.
The key point to remember is that someone from a modest background can become both Prime Minister and wealthy in the UK – it’s clearly the land of opportunity! Note: you don’t need to tell me how he acquired his wealth, but it was legally I believe.
Another disaffected group are those who held the Credit Suisse AT1 bonds who have been wiped out by the terms of the rescue by UBS. Investors are complaining that ordinary shareholders should have been wiped out first in priority as is normally the case. But these bonds have rather specific terms and were acquired by sophisticated institutions. They should have read the small print, as always when investing in bonds.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )You can “follow” this blog by entering your email address below. You will then receive an email alerting you to new posts as they are added