HIKE: The shadow MPC says it is time for the Bank of England to raise interest rates | City A.M.
The Bank of England is widely expected to hike interest rates tomorrow after delaying a move in May in light of a modest growth rebound and a tight labour market.
City A.M.’s shadow monetary policy committee (MPC) believes the time is right on balance, although with a split between economists which is likely to be reflected in Threadneedle Street tomorrow.
The split illustrates the big choice facing the Bank: hold back from tightening the supply of money to the economy in case of a chaotic Brexit process, or acknowledge historically high employment and the possibility of future inflation.
The Bank’s economists believe unemployment, which remains at a four-decade low, will start to engender inflationary pressures soon.
Read more: Bank of England: Economists split as policymakers face the unknown
The shadow MPC’s votes
Jacob Nell, chief UK economist, Morgan Stanley
HIKE In response to a historically tight labour market, a robust second-quarter rebound in growth, and new upside pressures on inflation from a weaker GBP and higher public sector pay settlements.
Kallum Pickering, senior UK economist, Berenberg bank
HIKE Demand growth has improved following the temporary softness in Q1. Labour markets continue to tighten. The economy would benefit from another small step towards a more normal policy setting.
Ruth Gregory, UK economist at Capital Economics
HIKE 25 basis points. Given the re-acceleration of growth in the second quarter and further tightening in the labour market, I would press ahead with the process of gradual monetary policy normalisation.
Karen Ward, chief market strategist for EMEA, JP Morgan Asset Management
HIKE The forecasts produced in May – which argued the soft patch would prove temporary – have been largely vindicated. The Bank has to demonstrate that it will look through temporary weakness as it has looked through temporary strength.
Jeavon Lolay, head of economics and strategy, economics and market insight, Lloyds Bank Commercial Banking
HIKE There is clear evidence to show the economy is on a firmer footing after the softness in the first quarter. Gradual tightening is warranted to prevent the build-up of inflationary pressures.
Vicky Pryce, board member, Centre for Economics and Business Research
HOLD The pick-up from the poor first quarter has been modest, forecasts for this year are being downgraded and the uncertainty over international trade and Brexit has, if anything, increased.
Simon Ward, chief economist at Janus Henderson Investors
HOLD Monetary growth is at a six-year low, implying a greater chance of inflation undershooting than overshooting over the medium term. Labour market strength is a lagging indicator and is probably peaking.
Tej Parikh, senior economist at the Institute of Directors
HOLD Despite higher growth in the second quarter, the evidence for a sustained rise in economic activity and wages remains thin – and a rate hike now risks damaging business and household confidence just as Brexit uncertainties ramp up.
Read more: How the Bank of England’s monetary policy committee are expected to vote