The pound has risen against the dollar today, after the Bank of England confirmed the base rate would stay at 0.5 per cent.
To date the UK has seen only a gentle slowdown from elevated rates of growth, so we would caution against exaggerating the change in tone of the latest data. After-all, the UK grew 0.9 per cent quarter-on-quarter in Q2, and business surveys continue to signal strong domestic momentum.
The key question for interest rates is whether growth will pick-up again next year, and whether the labour market continues to tighten regardless of the slightly softer patch for UK growth ahead. The risks come mainly from overseas.
However Investec's Philip Shaw argues that a rise could come earlier:
Overall our central case still sees the MPC raising rates next month, not least because we struggle to envisage the committee either beginning to tighten in the first few months of next year, so close to May’s general Election, or waiting as long until the summer. But given a degree of global economic uncertainty, it is quite possible that the relative probabilities shift between now and early November.