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Andrew Montlake: Who’d be a Bank governor?

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           It must be difficult to be Bank of England governor. No sooner have you set what you think is a pretty safe target as a potential trigger for interest rate movements; one you do not actually think will be hit for a year or so at least; than said target is almost breached within months.

Of course this is actually good news. But the fact that unemployment has fallen by 167,000 represents the biggest quarterly fall in unemployment for 17 years, with the rate now standing at 7.1 per cent, has opened up a can of worms.

Although the Bank quickly came out and denied they were planning to increase rates any time soon, and thus abandoning the “trigger” concept pretty quickly, it does leave several uncomfortable questions.

Firstly, how can the Bank’s forecasters be so wrong in their assessment of the economy? This is the nature of economics though, always an art rather than a science as every start of year predictor knows. At least, as Carney says: “If our forecast is going to be wrong, it is better to be wrong in that direction”.

The more important question is: “What do the markets believe”?

If they ignore the whole forward guidance concept then swap rates will no doubt continue to increase anyway and initial reactions look as if they did just that, although an initial spike in sterling has now subsided.

Swap rates have already increased recently and some lenders have already begun to put up the cost of five-year fixed rates accordingly.

The issue for consumers is who to believe and that is where careful advice is most needed. Many of us have been saying for a while that the five-year fixed market is where the real “value” is as it is unlikely products will get any cheaper. After this set of statistics, no matter what the Governor’s protestations are, this looks even more evident.

There are of course other considerations, especially when talking about a recovery that has twisted and turned more times than a John Le Carre novel. Apart from questions over the timing and pace of any changes, some are even mentioning a rate rise in August now. On the flip side there seem to be more economists talking about the dangers of deflation, which in itself could keep rates low.

All this adds to the pot of confusion and increasing clamour for independent advice that is seeing brokers receiving high levels of enquiries. Combined with the questions around the Mortgage Market Review and the inevitable decline of branch-based advisers, and it all adds up to be a very busy year for us.

Andrew Montlake is a director of mortgage broker Coreco

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