City A.M.’s Shadow monetary policy committee (MPC) voted eight-to-one in favour of holding rates at 0.25 per cent, as experts said the governor and his fellow rate-setters should wait for more signs of how the economy is responding to the EU referendum and the Bank’s massive stimulus package before moving again.
However, most said Threadneedle Street should stand ready to act if the economy deteriorates later this year, with financial markets pricing in a cut to interest rates when the MPC meets in November.
Carney's Brexit bazooka
Yael Selfin, guest chair and head of macroeconomics at KPMG, said: “The ammunition available to the MPC is so scarce that it needs to be saved for later”.
Since the Bank announced its £70bn quantitative easing extension and interest rate cut in early August, the outlook for the UK economy has improved significantly. A number of forecasters upgraded their predictions, with many rowing back on earlier statements that the UK would be tipped into a recession.
Read more: Carney defends his Brexit recession warning
Nevertheless, growth is still expected to slow over the rest of the year. The Bank itself is predicting the UK will barely expand between now and Christmas, and Carney has continued to lay the groundwork for a cut in November, despite a string of positive post-referendum data.
Ross Walker, UK economist at RBS, was the only member of the Shadow MPC to suggest a shift in interest rates. He argued the governor should cut to 0.1 per cent now, rather than waiting until the economic situation deteriorates.
In a separate forecast, published yesterday afternoon, the Economist Intelligence Unit predicted interest rates would stay at 0.25 per cent for at least the next five years. Societe Generale is forecasting rates to be even lower, at 0.05 per cent, by 2020.
City A.M.'s Shadow MPC
Guest chair: Yael Selfin, KPMG
"Recent data and surveys point to a more resilient economy in the short term, while the current low level of rates is continuing to inflict pain on banks, pensions and insurers.
"The ammunition available to the MPC is so scarce that it needs to be saved for later months when more bumps could emerge. The limitations of monetary policy in supporting the economy over the next few years should be recognised, with the baton passed to Government."
Ross Walker, RBS
Vote: Cut interest rates to 0.1 per cent
"The economy is on course for a material slowdown in growth in the third quarter, with growing risks of sub-trend expansion over the medium-term. Underlying price pressures remain negligible."
Kallum Pickering, Berenberg
"Economic data has been a bit better than expected since the Brexit vote. But medium-term growth prospects remain significantly below trend - further easing may be needed eventually."
Vicky Pryce, Centre for Economics and Business Research
"The early rate cut, quantitative easing and extra market liquidity have helped sentiment and activity - but prepare to act again later if confidence wanes given continued uncertainty over what Brexit actually means."
Brian Hilliard, Societe Generale
"The MPC acted preemptively in August, based on little more than survey data. Even though the surveys have since bounced, the MPC should now wait to see a significant body of hard data and update their forecasts before deciding on any further policy changes."
Alex Dryden, JP Morgan Asset Management
"After a surprisingly strong summer of UK economic data the case for immediate further monetary policy easing has waned."
James Sproule, Institute of Directors
"Lax monetary policy remains a concern and with consumer confidence post Brexit doing well, medium term bias is to tighten. No more quantitative easing."
Adam Chester, Lloyds Banking Group
"Recent indicators suggest the economy is holding up better than expected. With interest rates already so low it is questionable what benefit a further cut would achieve."
Simon Ward, Henderson
"Stop quantitative easing and rule out another rate cut. Monetary trends are signalling inflationary dangers, with [the Bank's preferred measure of money in circulation] rising by seven per cent over the past year and at a stunning 15 per cent pace over the latest three months."