OUR PANEL of monetary policy experts says the Bank of England should hold rates once again this month, with two votes for a hike.
More members of our shadow monetary policy committee are now noting the strength in the recovery, and acknowledging that a rate hike will eventually have to come. But inflation has dropped below two per cent, muting concerns that easy policy will drive up price pressures for the time being.
Berenberg now indicates that there will be four 0.25 percentage point rate hikes in 2015, and another four in the year after, bringing Bank rate to 2.5 per cent by the end of 2016. Chief economist Robert Wood said: “The way into quantitative easing will probably end up looking straightforward compared to the way out.”
CITY A.M. SHADOW MPC VOTES 7-2 FOR NO CHANGE IN POLICY
ALLISTER HEATH | CITY A.M.
As the International Monetary Fund hikes its forecast for the UK economy, so the Bank of England should acknowledge the strength of the recovery and raise Bank rate to one per cent. The continuation of ultra-loose monetary policy has long been unsuitable for such a rapid return to growth, and poses a threat to financial stability.
JAMES SPROULE | INSTITUTE OF DIRECTORS
Leave policy unchanged. We need to see a broader-based economic recovery before we can unwind QE. Rates will likely not need to rise until 2015.
GEORGE BUCKLEY | DEUTSCHE BANK
At some point in the not too distant future, assuming growth continues apace, interest rates will have to rise. But for now the Bank can afford to allow the recovery to gain traction.
ROBERT WOOD | BERENBERG BANK
Hold. The recovery is on a firmer footing and the UK is set for a period of above trend growth. Rates will need to rise, but probably not until the first quarter of next year.
SAMUEL TOMBS | CAPITAL ECONOMICS
With inflation falling, the case for leaving rates on hold remains powerful. The Bank should use macroprudential tools if the housing market needs cooling.
SIMON WARD | HENDERSON
Raise Bank rate to one per cent. Monetary trends continue to signal strong growth and rising price pressure during the second half of 2014. Spare capacity has now been exhausted.
VICKY PRYCE | GOVERNMENT ADVISER
Many indicators are below 2008 levels, and recovery is only slowly spreading across the wider economy. Though earnings are beginning to recover, inflation remains low. No change.
TREVOR WILLIAMS | LLOYDS BANK
The economy continues to recover, but this has been accompanied by weakening inflation and subdued wage pressure. With spare capacity still available, we would leave rates on hold.
ROSS WALKER | RBS
I have a mild tightening bias, given growing evidence of a revival in credit, but the current benign near-term inflation outlook means there is no need to pull the trigger just yet.