HOLD: The Shadow MPC calls for stability ahead of Bank of England's MPC vote

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Governor Mark Carney chairs the Monetary Policy Committee (MPC) (Source: Getty)

Top economists at the Bank of England are expected to leave monetary policy on hold at tomorrow’s midday announcement, with investors likely to be searching for any signs of dissent amongst policymakers.

That means the the rate-setting Monetary Policy Committee (MPC, reduced to eight members by the resignation of former deputy governor Charlotte Hogg) will leave bank rate at a historically low 0.25 per cent.

Market expectations do not price in a hike in bank rate, at which other lenders borrow from the Bank of England, until at least 2019.

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Meanwhile the stock of government bonds held by the Bank will be maintained at £435bn and the stock of corporate bonds at £10bn.

However, static monetary policy will mask intense movements under the surface at Threadneedle Street, with some economists predicting it will downgrade its growth forecast as it unveils its latest Inflation Report.

City A.M.’s shadow MPC has voted seven to two to hold rates steady, a more hawkish ratio than the Bank at the last meeting, which saw a first sign of dissent.

The March meeting saw Kristin Forbes, an externally appointed member who will leave in June, cast the first vote for a hike in interest rates since January 2016.

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The previous dissenter, external member Ian McCafferty, has so far resisted pressure to vote for a rise in rates.

The Bank last changed bank rate in August as it made a quarter-point cut in response to a Brexit vote it thought would damage growth.

Michael Saunders, another external member, hinted in a recent speech that the Bank is not “necessarily obliged to delay any policy moves” until the Brexit process has been played out, which some analysts have taken as a sign a hike could be closer than currently priced in.

However, the Bank has made it clear at multiple previous meetings it will look for domestic signs of inflationary pressure, especially from increasing wages.

Inflation hit 2.3 per cent in March, while wages in the three months to February 2017 grew at an annual rate of 2.2 per cent.

The Shadow MPC

Seven in favour of holding policy; two in favour of hiking

This month’s guest chair: Danae Kyriakopoulou, Official Monetary and Financial Institutions Forum

HOLD This month’s decision is one of the most difficult in the Bank’s 20 years of independent monetary policy-making. Inflation remains above target and at a 44-month high. Raising rates may seem justified but would be misguided. Prices have risen mainly due to a one-off depreciation, which should fall out of the yearly comparison eventually. Higher future inflation would come from accelerating economic and wage growth, which would ease the negative impact of bold monetary tightening. The risk of acting prematurely is higher given slowing economic growth and considerable policy uncertainty.

Kallum Pickering, Berenberg

HIKE Demand growth is stable amid the improving global backdrop, households are gearing up and underlying inflation is rising. Even with a modestly higher bank rate, policy would remain accommodative.

Ruth Gregory, Capital Economics

HOLD The dip in GDP growth in the first quarter, sluggish pay increases and sterling’s recent rise – which will limit the upcoming pick-up in inflation – strengthens the case for keeping policy settings unchanged.

Adam Chester, Lloyds Bank Commercial Banking

HOLD Although inflation is headed higher, the uncertainty surrounding the Brexit negotiations and the more mixed economic performance of late argue for keeping policy on hold.

Vicky Pryce, Centre for Economics and Business Research

HOLD Despite a stronger manufacturing sector signs are that both consumption and business investment are weakening and the surprise election has added to uncertainty over the future relationship with the EU.

Simon French, Panmure Gordon

HOLD The recovery in the pound and the lower oil price mean that inflation should now peak below 3 per cent this year. With consumer spending and unsecured borrowing also moderating in recent months it is a time for stability, not surprises.

Simon Ward, Henderson Global Investors

HIKE by 25 basis points. An increase would support sterling and help to moderate the coming inflation overshoot. Controlling inflation is the best way of supporting medium-term growth prospects.

Ross Walker, NatWest Markets

HOLD Recent data trends have been mixed but there is clearer evidence that higher inflation is weighing on real income and expenditure while Brexit-related factors pose downside risks for capex.

David Stubbs, JP Morgan Asset Management

HOLD Falling real wage growth and consumer confidence on top of the uncertainty surrounding the upcoming Brexit negotiations and the UK election make it a difficult time for rates to increase.

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