Shadow MPC: After the historic hike, Bank of England should hold fire

 
Jasper Jolly
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The Bank of England's MPC meets tomorrow (Source: Getty)

Last month the Bank of England raised interest rates for the first time in a decade – a momentous, if expected, moment. After the storm, the calm.

It's no surprise that our shadow monetary policy committee (MPC) has unanimously voted against raising interest rates at this meeting, arguing the Bank needs to be cautious about tightening the money supply too quickly.

Read more: Bank of England raises interest rates for the first time in a decade

While inflation is now officially above target, after the consumer price index hit 3.1 per cent yesterday, wage growth is still lagging behind, leading to real wage declines – despite a slight pick-up revealed today.

Meanwhile, some definite progress has been made in the Brexit negotiations, but crucial trade talks have yet to begin. Bank rate will remain at 0.5 per cent if the Bank makes no move, while the stock of government bonds bought under quantitative easing will remain at £435bn, plus £10bn of government bond purchases.

How the shadow MPC voted

Vicky Pryce, chief economic adviser, CEBR and former joint head of the Government Economic Service

HOLD Last month's rise to 0.5 per cent restored interest rates to where they were before the referendum last year. Though inflation is now at 3.1 per cent, requiring an explanatory note from the governor of the Bank of England to the chancellor, the reasons are mostly external and linked to the devaluation of sterling. The fourth quarter has seen some pick up in activity and the first phase Brexit deal may have a positive impact on investment decisions. However, latest business confidence surveys suggest a renewed fall and forecasts for next year have generally been downgraded including by the Office for Budget Responsibility.

Mike Bell, global market strategist, JP Morgan Asset Management

HOLD It’s too soon after the last rate rise and consumer confidence is too weak to raise rates again. I would want to see wage growth continue to pick up, consumer confidence start to increase and a transitional deal be agreed before I’d be inclined to raise rates again.

Simon French, chief economist, Panmure Gordon

HOLD We have concerns that macroprudential policies to reduce borrowing, and government policies to increase saving, will slow consumer spending in 2018. I would also like to see more evidence of a pick-up in wages before raising bank rate further.

Ruth Gregory, UK economist, Capital Economics

HOLD for now. While the first hike in a decade appears to have passed without much trouble, clearer signs of rising domestic cost pressures are needed before raising rates further.

Hetal Mehta, senior European economist, Legal and General Investment Management

HOLD Growth has stabilised, the risk of ‘Hard Brexit’ has fallen and inflation is overshooting, but wage growth is not yet strong enough to warrant another hike so soon.

Tej Parikh, senior economist, Institute of Directors

HOLD Despite recent progress in the first phase of Brexit negotiations, much work is still to be done in phase two. It is, therefore, important to keep the cost of credit low whilst businesses investment decisions are still on edge and as consumer spending is forecast to slow in 2018.

Kallum Pickering, senior UK economist, Berenberg bank

HOLD While more tightening is needed, hiking again too soon hike would raise market expectations about the future path by too much. Signal a hike could come early next year.

Yael Selfin, chief economist, KPMG UK

HOLD It is too early to raise rates again, but from now on the trend needs to be upwards, given higher inflationary pressures and the tight labour market.

Simon Ward, chief economist, Janus Henderson Investors

HOLD Inflation is likely to remain stubbornly high in 2018 but money trends have cooled, suggesting subdued growth prospects and arguing against further policy tightening now.

Read more: DEBATE: Should the Bank of England move from London to Birmingham?

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