Shadow MPC against a change in rates in first vote after guidance

IN THE first vote by City A.M’s shadow monetary policy committee (MPC) since the Bank of England’s forward guidance was announced, our panel of economists have voted to hold interest rates.

Seven votes on our board were for no change in rates, while one was for a 0.25 per cent hike in the bank rate, and another was for a 0.25 per cent reduction.

The Bank’s own decisions, which will be revealed today, are likely to also keep rates at their current historic low of 0.5 per cent, given the terms of its forward guidance.

Although the forward guidance programme laid out by new governor Mark Carney suggests that a rate rise will not be considered until around 2016, with strong data from third quarter surveys and on second quarter GDP emerging, many commentators are sceptical.

However, since this is the first month that the MPC has met since the scheme was announced, a change in policy is regarded as extremely unlikely.

Under forward guidance, no increase in the bank rate will be contemplated until unemployment falls below seven per cent. The plan could also end if low rates are deemed to pose risks to financial stability, or if inflation is expected to be over 2.5 per cent in 18-24 months.