The Bank of England’s decision on the 4th November to hold interest rates at the record low level of 0.1% triggered a 1.5% drop in Sterling and wrong-footed the City. With some outcomes including a rally in Government bonds, it looks like consumers have avoided the burden of an interest rate hike ahead of Christmas. For investors, no halt to rising inflation is likely to maintain the longest bull run in investment wine history.
Sterling fell to $1.352 in response to the surprise announcement as the City had been led to believe a rate rise at this stage was inevitable by Governor, Andrew Bailey’s comments ahead of the Monetary Policy Committee meeting. Markets had been primed for a 0.25% rise and some City commentators are now suggesting that there may be a wariness in future about communications from the BoE.
That said, an interest rate rise is not off the table with inflation still forecast to rise to 5% by April 2022 and the Bank will need to take action to bring levels back to the their target 2%. Rising energy costs into Q2 next year look set to continue to boost the cost of living, however this is expected to subside to some degree in the second half of 2022.
Another factor influencing the rate decision is the Bank’s cut to the growth forecasts for Q3 and Q4 2021, due to weaker consumer spending. Struggling supply chains and rising energy costs have weakened consumer confidence. This has pushed back the expected pandemic recovery timeline by a quarter.
Finally, the impact of the end of the furlough scheme is not yet fully understood and the Bank has allowed space for this to become clearer before taking any action that could create further challenges for the economy at this stage.
So, what does the rate suspension mean for wine investors?
There is more uncertainty in financial markets, economic forecasts are being reviewed and there is some immediate volatility in currency. US buyers of fine wine may take advantage of Sterling’s weakening.
With no immediate brake on inflation, prices and the cost of living will keep rising. Investment wine will also benefit from this inflationary dynamic and rising values will put further energy into a strong market which is likely to see increasingly strong trading levels as we approach Christmas.
The wine investment market is enjoying the longest bull run on record.
The key Liv-ex 100 benchmark hit and an all-time high, recording 2.2% growth in October 2021, surpassing the former record peaks achieved in 2011 and a twenty-year performance comparison sees the Liv-ex 100 exceeding the blue-chip S&P500.
For more information see our Q3 Market Report and call us on 0203 384 2262.