Predicting interest rate fluctuation
If you had been able to anticipate interest rate rises 5 years ago, how would it have impacted your strategic thinking?
In 2014, as part of our proactive horizon scanning, MITI Risk predicted an impending increase in interest rates, projecting them to reach levels between 7% and 9%. This foresight allowed us to closely examine the underlying trend, which revealed that once banks fulfilled their stress testing requirements, the Bank of England would likely initiate a gradual escalation of interest rates. By recognising this pattern, you could have adjusted your strategic thinking and positioned yourself to capitalise on the changing economic landscape.
We began witnessing the initial stages of this projected interest rate increase in 2017. However, this upward trajectory was abruptly interrupted by the unprecedented arrival of the COVID-19 pandemic. The ensuing economic uncertainty prompted the Bank of England to halt its plans for interest rate hikes, focusing instead on mitigating the adverse effects of the crisis.
Now, as the global economy gradually recovers from the pandemic, the Bank of England has shifted gears and is swiftly raising interest rates “to address inflationary pressures and stabilise the financial landscape”, citing the need to counter inflationary pressures and stabilise the financial environment of the UK.
However, upon closer examination and disregarding sensationalised headlines in mainstream media, one might discern that this rationale serves as a justification for rate hikes, while the underlying intention has always been to raise interest rates from an unsustainable low. The extensive money printing by the central banks, including the Bank of England, has just further aggravated the issue of inflation.
Looking back, it is crucial to reflect on whether our risk teams were able to identify this trajectory early enough to inform the decision-making process of the board.
Understanding the potential impact of interest rate fluctuations on our organisation’s operations, investments, and financial stability could have empowered us to make more informed and proactive strategic decisions.
Information on its own is not enough, it is the analysis of this data that gives your business the intelligence necessary for future strategic decision making.
