A month of big yes no decisions


September 11, 2014

Godfrey Blight is director at Capita Mortgage Services

On the 18 September we have the long awaited YES NO vote for Scottish independence. Before this, next Wednesday 10th September, we have our regular monthly interest rate decision from the Monetary Policy Committee: again the vote will be YES NO this time for interest rates to increase?

But could you two be connected?

For the last 5 and a half years it has been coffee and cakes at the Bank of England, a quick chat about the economy and the strength of the recovery. Immediate and constant consensus with no change and a diary invite for the next month. Until August that is when something different happened. Two of the Committee members had the gall to go against the flow and say yes, time for rates to rise! Why would they take this stance considering the strong economy showing the most growth in Europe for 2014, the pound doing very nicely against it peers, high levels of employment, confidence returning and people spending money again. We have certainly seen that confidence is returning full force into the mortgage market this year with gross advances out stripping all levels previously predicted. The same confidence appears to be creeping back into lending to businesses as well. So why vote yes now? We all know rates will have to go up at some point, this year or perhaps next year so after the election it has to be a yes, the decision is when.

There are concerns about the slack in the economy and the housing market over heating in certain areas but I think the biggest pressure, as we come to the end of the year, will be pressure on wage rises. We are all feeling better about life but there has been little or no salary increases across many sectors for the last 5 years. We want our spending power boosted and would like to see some decent wage rises in 2015 so we can keep pace or at least close some of the gap with inflation. I believe that will build pressure on more and more members of the MPC to raise their hands in the yes camp so we could well see more than two dissenters this month.

So what about the vote north of the border, could this impact? Up until now I think the majority of us and most importantly the City felt that a Yes vote was improbable. But despite the excruciatingly painful debates between Salmond and Darling, the latest You Gov survey published this weekend has shown that the no vote is crumbling. Was it Salmond performing well or Darling performing badly who knows but support for the No campaign has dropped. The yes campaign has now taken a 2 point lead with less than 2 weeks to go, yes has 51 % and no has 49%. So it could happen! We then have some thinking to do what happens with the pound, the economy, NATO, the housing market, loan agreements and so on and so on. Very complicated no doubt and in many ways concerning. As an immediate reaction to the You Gov figures the pound fell to a 5 month low against the US Dollar and weakened versus the Euro.

So I think the two yes/no decisions could be related. We could well see a reaction with our rates rising sooner than we thought if there is a yes vote for Scottish independence on the 18th September. In times of turmoil markets react. Whether you believe Scottish independence to be a good or bad thing it would I feel certainly create some turmoil if the no vote continues to crumble as these latest figures have shown.  

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