Threadneedle Street’s monetary policy committee (MPC) is widely expected to keep rates at their historical low of 0.5 per cent.
Disappointing data from the Office for National Statistics, which estimated first-quarter growth of just 0.3 per cent, is expected to have dampened any chance of an imminent rate hike.
City A.M.’s shadow MPC, above, has voted 7-2 to keep the UK’s stance unchanged this month.
CITY A.M.’S SHADOW MPC
OUR PANEL’S GUEST CHAIR FOR THIS MONTH: DAVID OWEN | JEFFERIES
Hold rates. Although we are confident the UK economy will pick up momentum again, world trade weakened in the first quarter, led by the US, wages have yet to pick-up decisively and inflation is well adrift from target. A hike will push up sterling when it comes.
CHRISTIAN SCHULZ | BERENBERG BANK
Hold rates. Amid subdued pay growth and a fiscal environment that is still not entirely certain there is time to wait. However, rapidly declining jobless numbers mean a rate hike will likely be needed in the next year.
ROSS WALKER | RBS
Hold rates. On balance the activity data have softened in recent months, while wage inflation continues to undershoot the Bank of England’s projections. There is no urgency to change monetary policy settings.
JAMES SPROULE | INSTITUTE OF DIRECTORS
Tighten. Although now that policymakers in the US are backing away from raising rates and figures show Britain’s economic growth slowing, the argument is less timely.
GEORGE BUCKLEY | DEUTSCHE BANK
Given that political uncertainty was high on the agenda ahead of this policy meeting and that some of the surveys slowed (temporarily, we think), it makes sense to hold fire this month. But as growth recovers and inflation rises, interest rates will need to be raised.
SIMON WARD | HENDERSON
Raise rates by 0.25 per cent. Inflation is likely to return to above target in 2016-17, reflecting rising labour cost pressures, a reversal of oil price/sterling drags and continued above-trend growth. Low rates undermine capital discipline and are contributing to productivity weakness.
VICKY PRYCE | BIS AND CEBR ADVISER
Hold. Despite surveys indicating some greater buoyancy in the economy, the slowdown in GDP growth in the first quarter suggests that the recovery remains fragile. Although oil prices have rebounded somewhat, retail price wars are exerting downward pressure on inflation.
VICKY REDWOOD | CAPITAL ECONOMICS
Hold rates. There was a lot of political uncertainty until last week, which probably ruled out any change. In any case, election aside, although the risk of prolonged deflation is low, there is plenty of scope for the economy to grow strongly without generating price pressures.
TREVOR WILLIAMS | LLOYDS BANK
Hold. Despite weaker than expected economic growth in the first quarter, more recent data shows that the UK is expanding at a healthy pace. In time, the first quarter GDP outcome is likely to be revised higher.