Economists opt to wait on rate hike

 
Chris Papadopoullos
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WITH inflation drifting into negative territory, growth slowing at the start of the year, and recent surveys suggesting that weak growth continued, City A.M.’s panel of economists voted seven to two to hold interest rates.

The Bank of England’s nine-strong monetary policy committee will announce its monthly decision on whether to hold, raise, or even cut interest rates this morning at 11am.

The Bank’s main policy rate has been 0.5 per cent since March 2009. The latest reading for annual inflation came in at minus 0.1 per cent in April, the first negative inflation since 1962, according to estimates.

The UK economy slowed at the start of the year, growing by just 0.3 per cent from January to March. It expanded 0.6 per cent in the three months prior.

CITY A.M.’S SHADOW MONETARY POLICY COMMITTEE

OUR PANEL’S GUEST CHAIR FOR THIS MONTH: DAVID TINSLEY | UBS
Hold Rates. We are fairly confident that the economy will enjoy a post-election bounce, after some signs of weakening over the first months of the year. For one, consumer confidence is high and wage growth appears to be picking up. And businesses appear in reasonable shape. But it would be premature to raise rates yet and there is no real rush – inflation is low and there are still risks, for one the potential for Grexit knocking the international economy off course.

JAMES SPROULE INSTITUTE OF DIRECTORS
Raise rates. While the eventual stable target rate may be falling in light of the global macro situation, present rates are adding to domestic asset valuation concerns.

GEORGE BUCKLEY DEUTSCHE BANK
Hold. Survey data has been weaker recently but it still points to reasonable rates of growth going forward. Holding rates for now would be appropriate until we see evidence of a strengthening in output and rising inflation.

CHRISTIAN SCHULZ BERENBERG BANK
Hold rates. Strong sterling and subdued pay growth mean there is still time to wait. Rapidly declining jobless numbers make a rate hike necessary early next year.

VICKY REDWOOD CAPITAL ECONOMICS
Hold rates, not least to wait and see what happens in the Budget. Even though the recovery probably got back on track this quarter, the outlook for inflation is benign and there is no need for the MPC to rush.

SIMON WARD HENDERSON
Raise rates . Domestically-generated inflation has picked up, with the non-oil gross value added deflator rising by an annual 2.7 per cent. Growth is likely to remain above trend and bank interest rates have fallen.

VICKY PRYCE BIS AND CEBR ADVISER
Hold. Despite a pick up in construction and cuts in unemployment, the UK is still recovering from the uncertainty that surrounded the elections. The Eurozone debt crisis and concerns over an EU referendum will restrain growth prospects.

TREVOR WILLIAMS LLOYDS BANK

Hold. Inflation is now mildly negative and likely to remain close to zero over the next few months. If growth accelerates through 2015 and unemployment continues to fall, a pre-emptive rate rise may be needed before the year is out.

ROSS WALKER RBS
Hold. Although the Q1 GDP data look artificially weak, the pace of growth in H1 2015 is not obviously eroding spare capacity. Underlying inflation pressures are subdued and there is scant evidence of any big pick-up in wage inflation.