Economists opt to wait on rate hike

 
Chris Papadopoullos
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CITY A.M.’s panel of economists voted seven to two to hold the Bank of England’s base rate at 0.5 per cent this month.

Inflation dipped to zero per cent in February, and the Bank of England has warned that it could slip into negative territory over the first half of this year.

With inflation well below its two per cent target, many economists are fearful of raising rates, despite the expectation that inflation will recover once energy prices stabilise. The Bank of England’s monetary policy committee will announce its decision at 12pm today.

Interest rates have been at 0.5 per cent since March 2009. However, the Bank said this year it could cut rates closer to zero, a move not consid­ered in the UK before.

CITY A.M.’S SHADOW MPC

OUR PANEL’S GUEST CHAIR FOR THIS MONTH: RICHARD BATLEY | LOMBARD STREET RESEARCH
Hold rates. Softer global data, subdued inflation and election uncertainty take the urgency from rate hikes. But the gathering positive impact of lower oil prices on household spending and accelerating wage growth mean that rates at emergency low levels will be hard to justify later in 2015. A Yellen-like communication effort will be needed to prepare a complacent market for the first hike.

JAMES SPROULE INSTITUTE OF DIRECTORS
Raise rates. The need to normalise UK interest rates remains. Impending US Federal Reserve tightening removes the last excuse for our inaction.

GEORGE BUCKLEY DEUTSCHE BANK
Hold rates. The economy continues to recover. However, low inflation could prove short-lived so the Bank may need to start lifting rates within the coming year.

CHRISTIAN SCHULZ BERENBERG BANK
Hold rates. Subdued pay growth means there is time to wait. But strong growth, rapidly declining jobless numbers and increasing vacancies mean a rate hike will likely be needed in the next year.

SAMUEL TOMBS CAPITAL ECONOMICS
Hold rates. Although the economy is growing strongly, the weakness of domestic inflationary pressures suggests that the punch bowl does not need to be removed yet.

SIMON WARD HENDERSON
Raise rates. Growth has been revised up, surveys remain strong and vacancies are above their late 2000s peak, signalling a tight labour market.

VICKY PRYCE BIS AND CEBR ADVISER
Hold rates. Lower oil prices should help growth. But inflation now down to zero, a stronger exchange rate against the troubled euro is inhibiting manufacturing and exports.

TREVOR WILLIAMS LLOYDS BANK
Hold rates. Recent data confirms that the UK economy remains in good shape. Zero price inflation alone implies unchanged rates in April but elections in May make it almost certain.

ROSS WALKER RBS
Hold rates. With inflation forecast to remain below target some way into 2017 there is no compelling reason to raise the bank rate now.