Debt Advisory Update
Since we last wrote, the world has realised that inflation really is ‘a thing’. Currently UK CPI has reached 8.6% but for like-for-like comparison, RPI is now already 11.1%% (while RPI is bad statistics, pension funds are current suing the Govt to reinstate this for index-linked bonds).
So last week, we saw the Fed raise by 75bp, leaving the Red Funds Rate at 1.75%, well below its level throughout the 1990s. While the BoE was expected to raise rates by at least 50bp, instead they opted for 25bp, deciding that base rates of 1.25% is enough to quell inflation; for reference, this means that UK real rates are now -ve 7.25%. It’s good to see the Bank of England having its independence tested but, like my waiting for my children’s end of year exam results, I’m worried about the outcome.