Election-induced uncertainty means the Bank of England is highly unlikely to make any changes whatsoever to monetary policy at tomorrow’s midday announcement, with City A.M.’s shadow monetary policy committee (MPC) voting against any move.
Inflation surged to 2.9 per cent in May, far above the Bank’s two per cent target, but the economists at Threadneedle Street have already shown caution over tightening its key interest rate, bank rate, with the UK economy in a precarious position.
Bank rate currently stands at 0.25 per cent. The last movement came in August last year, when governor Mark Carney announced an emergency rate cut in the aftermath of the Brexit vote.
Since then the economy has performed better than expected, but the hung Parliament after last week’s election has made a move by the MPC even less attractive.
The full implications of the vote on the Brexit process remain undetermined, but the Shadow MPC has judged, with one exception, that no changes should be made to monetary policy.
The Shadow MPC votes HOLD: 8-1
Samuel Tombs, Pantheon Macroeconomics, this month’s guest chair
HOLD Wage growth has remained subdued, consistent with inflation returning to the two per cent target in late 2018 once the import price shock has fed through. Meanwhile, the latest official data suggest that GDP will struggle to better the first quarter’s meagre 0.2 per cent quarterly rise. At least the hung parliament has made a soft Brexit more likely, and looks set to lead to less restrictive fiscal policy. But with the government still suggesting it could walk away without a deal, Brexit risk will continue to dampen the economy, necessitating loose monetary policy.
Simon Ward, Henderson Global Investors
HIKE by 0.25 per cent. Above-forecast inflation, solid labour market data and a post-election risk of fiscal loosening strengthen the case for action. Higher rates would support sterling and hasten an inflation peak.
Victoria Bateman, Cambridge University
HOLD Rates have been too low for too long, but hiking's reckless given worsening macro – and May's mess! Inflation's higher following currency collapse, but only temporarily. A soft Brexit's wishful thinking.
Adam Chester, Lloyds Bank
HOLD Although inflation is at a four-year high, the elevated uncertainty and recent signs of slower UK growth argue for no change.
Simon French, Panmure Gordon
HOLD There is no evidence that recent above-target UK inflation will persist into 2018. Therefore with heightened political uncertainty and signs of a modest consumer slowdown it makes sense to maintain current monetary policy.
Paul Hollingsworth, Capital Economics
HOLD Following the election, uncertainty about the outlook for the economy, fiscal policy and Brexit justifies leaving interest rates on hold and asset purchases unchanged.
Kallum Pickering, Berenberg Bank
HOLD The UK needs a gradual tightening of monetary policy as underlying inflationary pressures are building. But amid the election uncertainty it is better to hold off temporarily for now.
Vicky Pryce, Centre for Economics and Business Research
HOLD Consumers appear more reluctant to spend as real wages are falling, while business confidence has been shaken by the shock election result and fresh uncertainty over the forthcoming Brexit negotiations.
David Stubbs, JP Morgan Asset Management
HOLD With real wages falling, the savings rate at historic lows and debt levels elevated, the main engine of growth, consumption, could splutter in coming quarters. Holding policy is the prudent action for now.