Oliver Chapman, CEO of the UK’s No.1* fastest growing company, comments on the Bank of England’s latest interest rate increase

The Bank of England could be behind the supply side re-adjustment

Bank of England hikes interest rates and warns of lengthy recession, but supply side re-adjustment suggests the bank could be behind the curve, says boss of supply-side specialists. 

“The cost of living crisis is hurting, so the Bank of England reacts by making things even tougher for households. However, it may be that the bank’s latest rate hike is a step too far, and the full impact will be felt just as prices start to fall, making a bad situation worse,” warns Oliver Chapman, CEO of supply chain specialist and the UK’s No.1 fastest growing company* OCI. 

“There are always time lags between a change in interest rate and the full economic impact. So what the Bank of England does now will still be affecting the economy in 18 months. And in 18 months, inflation may be a lot lower anyway.

“Clearly, the bank was too late in increasing interest rates. UK rates have been increased by half a percentage point to 1.75 per cent. They were still at only 0.15 per cent as recently as the beginning of this year. The bank should have begun increasing rates much sooner, and more aggressively and then maybe the peak interest rate would have been much lower than now looks likely.”

Mr Chapman also suggests market conditions are not supporting the Bank of England’s latest move.

“The supply chain reacts slowly to external shocks. But it does react. And we are now seeing that reaction. Brent Crude oil is now 20 per cent down on the year high. The lumber price is 40 per cent off the year high. The wheat price is down by a third from the level three or so months ago, and corn is down by around a quarter. The copper price has fallen sharply in recent weeks too.

“It will take time before recent falls in commodity prices show up in the inflation data, but bear in mind that for inflation to persist year on year, prices must continue to rise. Instead, commodity prices are now falling.

“The rationale for higher rates is partly to counteract any inflationary effect that higher wages might have, but inflation will probably be falling sharply by the time the latest hike has its full impact.

“No wonder the Bank of England expects a recession, but by mistiming its rate changes — being too slow to respond and now responding aggressively when there are signs of a gradual re-adjustment to the supply chain, they risk creating a much greater economic crisis than is necessary.”

Mr Chapman points to recent falls in bond yields to support his view. “The yield on UK ten-year treasuries has fallen from 2.5 per cent in June to 1.8 per cent today, suggesting that the markets too are anticipating a fall in interest rates soon.”

About OCI:

OCI is the world’s first in commercial process outsourcing. It redesigns supply chains for organisations, to drive growth.

Working capital cycles are at their longest ever, restricting businesses’ potential for growth.

OCI harnesses technology and commercial process solutions to free working capital from supply chains.

OCI’s unique approach eases financial constraints, making businesses more agile, accelerating their growth.