At their last meeting, the Bank of England’s policy makers voted to keep interest rates at 0.5%, after the first rise in 10 years had seen an increase from 0.25% in November, but also went on to say rates would need to rise “earlier” and to a “somewhat greater extent’ than they previously thought.
Whilst the economy remains strong, It points out that the UK economic engine still “remains restrained by Brexit-related uncertainty” which is “the most significant influence on the economic outlook”.
We are driving along with the hand brake half on.
Growth is modest by historic standards and the UK has gone from the fastest growing economy among the G7 largest global economies to the slowest.
No one is really certain when the next rate rise will come but some economists are predicting a rise in May with more to follow later in the year. Here’s what some had to say:-
“All told, the MPC (Monetary Policy Committee) has signalled to markets that a May rate hike is under active consideration, but is far from guaranteed… we still think that the MPC will hold back until August,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Paul Hollingsworth, senior UK economist at Capital Economics said: “With surveys suggesting recruitment difficulties are building and the latest pay settlements surveys also strong, a further acceleration in wage growth is in prospect.
“Today’s releases pave the way for an interest rate hike in May, and as a result, we continue to think that the Monetary Policy Committee will hike a further two times this year, taking Bank Rate to 1.25%.”
Kallum Pickering, senior UK economist at investment bank Berenberg, added: “It is becoming increasingly difficult for the BoE to justify its ultra-accommodative policy stance. We therefore look for two hikes in the Bank Rate in 2018.”
John Hawksworth, chief economist at PwC, said that if jobs and wage growth continued, “this could push the MPC towards a further interest rate rise later in 2018”.
In a letter to the Chancellor, Phillip Hammond, to explain the reasons behind why inflation had breached its target rate of 3% in November the governor of the Bank of England, Mark Carney said that higher inflation was “almost entirely” due to the effects of a rise in the prices of imports, caused by the fall in the pound’s value after Britain voted to leave the European Union.
The chancellor replied by stressing the importance of boosting UK productivity and the government’s efforts to make that happen.
Official figures last month showed that the economy grew 0.5% in the last three months of 2017, which was faster than economists had been expecting.
Unemployment remains low at 4.3% and inflation edged lower in December to 3%.