Falling inflation set to prevent rate hike today

 
Chris Papadopoullos
Follow Chris
CITY A.M.’s panel of economists have voted in favour of keeping interest rates at record lows of 0.5 per cent.

Bank of England (BoE) officials will announce their latest decision at 12 noon today. The main concerns among our shadow monetary policy committee were inflation, growth and uncertainty.

Inflation dropped to one per cent in November and is expected to fall further below the BoE’s two per cent target as low oil prices are passed on to consumers.

Economic growth in the UK has been revised downwards. Output from goods and services was believed to have been three per cent higher from July to September compared to a year ago, yet this has been revised to 2.6 per cent. Recent surveys of the private sector – such as a purchasing managers’ index – also points to growth softening.

The General Election in May is creating uncertainty for businesses. Uncertainty is also being generated by elections in Greece, which could have ramifications for the country’s place in the Eurozone.

The BoE has maintained its policy rate at 0.5 per cent since March 2009. Its last inflation report forecast a drop in the consumer price index to below one per cent during the first six months of 2015.

CITY A.M. SHADOW MPC VOTE 7-2 TO HOLD RATES AT 0.5 PER CENT

OUR PANEL’S GUEST CHAIR FOR THIS MONTH: ANDREW GOODWIN | OXFORD ECONOMICS

Hold rates. Growth has cooled of late and the global environment remains uncertain. There is little risk from erring on the side of caution – in the short-term CPI is heading towards zero and we believe that there is plenty of spare capacity in the economy, so even if low oil prices trigger a burst of strong growth, inflation is unlikely to take off.

JAMES SPROULE INSTITUTE OF DIRECTORS
Raise rates. Normalisation of monetary policy needs to begin; ultra-loose rates only cause long term problems as exceptional begins to be considered normal.

SIMON WARD HENDERSON
Raise rates. Growth remains above trend and economic slack has been largely exhausted. Oil and food price effects have obscured a rise in domestic inflation.

GEORGE BUCKLEY DEUTSCHE BANK
Hold. A set of softer survey data since the turn of the year suggests moderating growth. Inflation is set to fall below one per cent and euro area concerns are escalating.

VICKY PRYCE BIS AND CEBR ADVISER
Hold. Economic growth in the UK revised downwards, uncertainty over the elections and upheavals in the Eurozone are affecting confidence and hiring intentions.

ROBERT WOOD BERENBERG BANK
Hold rates. Inflation is heading well below one per cent so there is plenty of time to wait.

TREVOR WILLIAMS LLOYDS BANK
Hold. UK consumer price inflation fell to one per cent in November and further falls are likely in the next few months before it starts to reverse. Growth remains healthy, but may have peaked.

SAMUEL TOMBS CAPITAL ECONOMICS
Hold. The recovery has lost some poise and inflationary pressures are currently very weak. But if wage growth continues to pick up, then rates may need to be nudged up later this year.

ROSS WALKER RBS
Hold. With inflation nose-diving and evidence of some loss of momentum in economy activity, there is no pressing need to raise bank rate.

Related articles