The Bank of England must leave interest rates on hold tomorrow and resist the urge to tinker until Britain’s economy is out of the General Election and Brexit fog, City A.M.’s panel of expert economists has said.
Much has changed in British politics since the BoE’s last monetary policy committee (MPC) decision in September. Prime Minister Boris Johnson failed to push his new deal quickly through parliament, leading him to request a Brexit extension and ultimately call a General Election, bringing yet more uncertainty to the economy.
City A.M.’s Shadow MPC today voted eight to one in favour of keeping the main interest rate on hold at 0.75 per cent. The consensus view was that with politics in flux, any move would be guess work and not grounded in any reliable expectations about the future.
Here’s what our Shadow MPC said:
Guest chair: Frances Haque – Santander
Hold: The bank rate should be kept flat. Inflation remains below the two per cent mark with economic growth data for the third quarter looking more positive than the previous quarter. And with real wage growth continuing, there is less of a rush required to create further stimulus. With the current political landscape now in General Election mode and further fiscal boosts on the cards, it seems prudent to wait and see the outcome of the election before making a change. However, if there is further Brexit delay leading to slower economic growth a cut may be required.
Jeavon Lolay – Lloyds Bank
Hold: There is a strong case for waiting for further news before any move. Brexit developments remain conditional on the upcoming election, adding another layer of uncertainty to the economic outlook.
Peter Dixon – Commerzbank
Hold: Economic conditions remain benign and inflation is contained. With the Brexit deadline merely having been postponed another three months, the prudent strategy is to keep the powder dry for now.
Vicky Pryce – CEBR
Hold: And be prepared to do more if needed. UK economy appears to be stagnating as world economy slows down, Brexit worries continue to dampen business and consumer sentiment and forthcoming general election is adding to uncertainty.
Mike Bell – JP Morgan Asset Management
Hold: With an election approaching that could potentially provide more clarity on what type of Brexit, if any, we are heading for, it makes sense to stay on hold for now.
Simon Ward – Janus Henderson
Cut: The case for easing is at least as strong as elsewhere. Inflation is below target and falling while economic weakness has spread to the labour market, with unemployment and redundancies picking up.
Ruth Gregory – Capital Economics
Hold: The chance of a Brexit deal in January suggests a cut would be premature. But unless the headwinds of weak global growth and Brexit uncertainty fade, the next move in rates may be down.
Tej Parikh – Institute of Directors
Hold: With the upcoming election largely making calculations about Brexit and the future path of the economy moot, it’s best to hold interest rates for now.
Joshua Mahony – IG
Hold: Carney had his hands burnt by the mistakenly cutting rates immediately after the referendum. With Brexit and election uncertainty looming, now is the time to wait for the dust to settle.
(Image credit: Getty)