Fidelity International fixed income manager Ian Spreadbury has warned it would be a mistake for the Bank of England to cut rates today, despite markets pricing in an 80 per cent chance they will drop from 0.5 to 0.25 per cent.
Spreadbury says the world already has a record level of global debt, rising from 269 per cent relative to GDP to 286 per cent in the seven years following the global financial crisis. It should not be encouraged to borrow more through monetary stimulus, he said.
Furthermore, Spreadbury says low interest rates are encouraging people to save significantly more in order to have enough income for their retirement.
“I think it’s a mistake,” Spreadbury says. “I think if Mark Carney does [cut rates], what are you achieving? Are you really achieving growth? I think there’s a bigger risk that they’re just exacerbating the rich-poor divide and just encouraging people to save more.”
Inequality is reaching Rockefeller-era levels, Spreadbury says.
Monetary stimulus is often criticised for driving up the price of assets, while driving down the value of currency, meaning lower socio-economic groups can be left behind.
Spreadbury also says politicians need to address the population that voted for Brexit because they feel left behind.
“I think the vote indicates that there is a chunk of the population who are disillusioned and haven’t really participated in the growth that we’ve seen or they’ve found their jobs less stable.
“I think politicians need to sort this out. I think it will lead to political volatility, which will impact the markets going forward.”