Our guest panel of city economists has voted to hold rates this month.
Among the main concerns were lower rates of inflation becoming embedded in people’s expectations. However, one hawk argues that low interest rates are in danger of becoming embedded in borrowers’ expectations.
Other concerns were the potential for a new Greek crisis and signs of a slowdown in the UK’s economic growth at the end of 2014. The latest inflation reading in the UK was 0.5 per cent in December, as measured by the year-on-year change in the consumer price index. Meanwhile, the Bank of England’s bank rate is currently at 0.5 per cent, where it has remained since March 2009.
CITY A.M.’S SHADOW MPC
OUR PANEL’S GUEST CHAIR FOR THIS MONTH: PHILIP SHAW | INVESTEC
Hold. Results from recent surveys indicate that the recovery has lost relatively little momentum and spending should be further supported by the decline in petrol prices. However, there are risks from the uncertainty in Greece and moreover inflation is well below target and may go negative soon. The case to sit tight is compelling while we await more clarity on medium-term prospects.
JAMES SPROULE INSTITUTE OF DIRECTORS
Raise rates. The economy is still growing well enough to justify normalising rates; the danger is that overly loose policy leads to dependency on ultra-low rates.
GEORGE BUCKLEY DEUTSCHE BANK
No change. The high chance of inflation turning negative, alongside weaker economic growth this year compared to last, suggests that now is not the time to tighten monetary policy.
ROBERT WOOD BERENBERG BANK
No change. Inflation might turn negative soon while wage growth is still weak. There is plenty of time to wait.
SAMUEL TOMBS CAPITAL ECONOMICS
No change. We need to wait and see whether near-zero inflation starts to have any detrimental “second-round” effects on inflation expectations and wages.
SIMON WARD HENDERSON
Raise rates. Growth remains solid, the labour market is tightening further and wages are picking up. Eurozone prospects are brightening.
VICKY PRYCE BIS AND CEBR ADVISER
No change. The end of 2014 suggested a slowdown in the rate of growth and despite some recent pick up in construction, manufacturing and services, downward risks remain in Europe.
TREVOR WILLIAMS LLOYDS BANK
No change. Inflation is below target, and is likely to turn negative soon. Growth slowed to 0.5 per cent in the last three months of 2014, and risks from our key market in Europe remain high.
ROSS WALKER RBS
No change. Although the medium-term inflation outlook has not changed much in recent months, there is a growing risk that the sharp undershoot in current inflation affects expectations.