The Bank of England is expected to raise interest rates tomorrow, bringing an end to an extraordinary decade without a single hike.
City A.M.'s shadow monetary policy committee (MPC), including some of the most prominent economists in the Square Mile, narrowly backed the move, but remained split by five votes to four in favour of raising bank rate by 0.25 percentage points.
See how they voted below.
Some of the Bank's policymakers are expected to exhibit similar worries about the underlying strength of the economy despite a slight third-quarter pick-up. However, persistent messages that a rate rise in imminent mean the central bank's credibility will take a severe hit if it does not follow through.
The last time bank rate changed was in August 2016, when governor Mark Carney announced a 0.25 percentage point cut to 0.25 per cent, as well as corporate bond purchases in the immediate aftermath of the Brexit vote.
However, the last time bank rate rose was 5 July 2007 – to 5.75 per cent – before the first shockwaves from the global financial crisis became evident in the British economy.
The Shadow MPC's votes
Jacob Nell, chief UK economist, Morgan Stanley, guest chair
HIKE With unemployment holding below our 4.5 per cent estimate of full employment, the UK is running above potential. For most members, this implies growing inflationary risks and now justifies a hike. In addition, the government’s switch to supporting a transition has reduced the risk of a disruptive Brexit, and a reason for caution. In line with our September guidance, and further encouraged by higher October inflation and growth prints, we have voted for a hike, and expect to hike again, at a gradual pace, if the economy evolves as expected.
Mike Bell, global market strategist, JP Morgan Asset Management
HOLD Weakness in the housing market and in retail sales, combined with continued uncertainty over the likelihood of a transition deal, would prevent me from voting for a rate rise until wage growth starts to accelerate.
Adam Chester, head of economics, Lloyds Bank Commercial Banking
HIKE The economy appears strong enough to withstand a modest 0.25 percentage point tightening in policy. Meanwhile, inflation is set to rise above three per cent in the coming months and the labour market has tightened further since the last BoE inflation report.
Simon French, chief economist, Panmure Gordon
HOLD Whilst I believe there is little to fear from a 25bp rate increase, the risks are asymmetric. The risk that a rate hike slows growth further is of greater concern to me than inflation spiralling out of control.
Ruth Gregory, UK economist, Capital Economics
HIKE by 0.25 per cent. The economy’s ongoing resilience suggests that the emergency levels of policy support implemented after the referendum are not still warranted.
Tej Parikh, senior economist, Institute of Directors
HOLD With subdued real wage growth already squeezing households, and an uncertain economic outlook, rate rises should remain on hold for the time being – particularly with the inflationary impact of the weakened currency soon expected to fade.
Kallum Pickering, senior UK economist, Berenberg Bank
HIKE Demand growth since the Brexit vote has slowed by much less than anticipated. Without higher interest rates, inflation will overshoot the two per cent target over the medium term.
Vicky Pryce, chief economic adviser, Centre for Economics and Business Research
HOLD Most economic indicators suggest a slowdown ahead and third-quarter data confirm the lack of meaningful improvement in growth. Forecasts for 2018 revised downwards as consumer slowdown compounded by low investment.
Simon Ward, chief economist, Janus Henderson Investors
HIKE The ill-judged August 2016 cut should have been reversed sooner. Growth is stable and high inflation is not just due to sterling – unit labour costs are rising much faster than forecast.