As the Bank of England (BoE) held interest rates at 0.1 per cent today, RSM has called on middle market businesses to use this as further evidence to be bold and invest in their future whilst borrowing remains at historic lows.
The BoE put its estimation of a strong economic recovery later this year down to the UK’s rapid Covid-19 vaccination programme. Policymakers expect a rebound in Q2 as confidence resumes.
Simon Hart, lead international partner at RSM UK comments: ‘As expected the BoE held it’s current rate of 0.1 per cent. Although this implies a slower pace of growth for 2021, probably near to 5 per cent this year, it will be followed by stronger growth closer to 7 per cent in 2022. It’s also clear that the BoE doesn’t intend to tighten policy until there’s a major improvement in the economic outlook.
‘The one thing we can be sure of that the last two decades of economic and geopolitical instability has taught us, is that when it comes to policymaking during a crisis: be prepared to act boldly, decisively and then sustain that policy longer than most would be comfortable. The BoE has entered that last phase during the current crisis. Also, as inflation remains muted as the impact of the pandemic continues to extract a powerful toll on domestic demand, the MCP expects inflation to return to its 2 per cent target over the next three years. Pent up consumer spending is likely to follow post pandemic.
‘Looking to middle market businesses and how they should interpret the BoE’s latest announcement to assist commercial decisions – reflective of the BoE’s sustained policy, we’d urge businesses to be bold and invest now, not later, whilst borrowing remains affordable for the foreseeable future. Those who are willing and able to invest in digital transformation now will reap the rewards in the future.’
RSM’s own Financial Conditions Index (FCI) continues to indicate signs of cautious optimism emerging for the year ahead. The firm’s Index, an aggregated performance indicator of currency, bond and equity markets, nudged upwards, from -0.1 below normal stress levels at the start of the year to a reading of 0.1 today.
Simon Hart comments: ‘The signs are improving as both today’s BoE announcement and our own FCI reading shows. Our index supports the notion of a relatively improved pace of economic activity in the second half of this year linked to the national distribution of Coronavirus vaccines and a sustained increase in consumer spending near to 6 per cent. Whilst sentiment has been slow to improve, it’s encouraging to see the index climb into positive territory for the first time since Q1 2020.’