The Bank of England has no option but to keep interest rates on hold until after the EU referendum, leading city economists and experts have said.
The Bank’s rate-setting monetary policy committee (MPC) meets today, just one week before the 23 June vote, with all eyes on governor Mark Carney who warned last month that a vote to leave the EU could plunge the UK into recession.
Brexit uncertainties pushed City A.M.’s Shadow MPC to vote unanimously to hold rates at their current level of 0.5 per cent.
It is the first time the panel have been united in well over a year, as hawks James Sproule of the Institute of Directors and Simon Ward of Henderson abandoned their recent calls to raise rates.
Carney has said that should the UK vote to leave the EU, he will face a difficult trade-off in terms of monetary policy as he may have to fight rising inflation at the same time as slowing growth and financial instability.
According to Bloomberg data, markets currently put a higher chance on interest rates going down, not up, over the next 12 months.
City A.M.'s Shadow MPC
Guest Chair: Mike Bell, JP Morgan Asset Management
With the referendum so hard to call and so critical for the outlook for UK economic growth a wait and see approach is the most sensible one. Expect a rebound in growth if we remain but a weak growth and high inflation outlook if we vote to leave.
George Buckley, Deutsche Bank
The outlook for interest rates over the coming months will be Brexit-dependent, but for now continued growth and low inflation requires stable policy.
Simon French, Panmure Gordon
The medium term path for UK inflation is upwards as a weaker pound and higher fuel costs trigger higher prices. Recent softer data emerging from the UK labour market and next week’s EU referendum are good reasons to sit tight for now.
Kallum Pickering, Berenberg
Policy is set based on expectations. Until the UK votes on EU membership, it is impossible know which future we might face.
Simon Ward, Henderson
Prepare to raise in the event of 'Bremain'. Economic growth remains solid, the labour market continues to tighten and the exchange rate drag on inflation is reversing. Non-financial broad money is growing at six per cent per annum – probably too high to contain inflation at two per cent over the medium term.
Ross Walker, Royal Bank of Scotland
Data and survey indicators remain consistent with sub-trend growth while underlying consumer prices index (CPI) and wage inflation pressures remain muted. There is no urgency to raise rates.
Adam Chester, Lloyds Banking Group
The proximity of the referendum and the heightened uncertainty surrounding the outlook mean rates should be left firmly on hold this month.
Brian Hilliard, Societe Generale
With the EU referendum only a week away, the short term economic outlook is becoming very uncertain. There is no significant inflation pressure and economic growth is set to continue cooling, even if the UK votes to remain.
James Sproule, Institute of Directors
The opportunity to raise has been missed, all policy on hold until post EU referendum.