Tomorrow the Bank of England’s Monetary Policy Committee will meet to decide whether or not they should raise interest rates. Thursday will also see the publication of the Bank of England’s latest economic forecasts in its quarterly Inflation Report.
What do we think is going to happen?
Following the Bank’s communications back in February, financial markets were confident (80% sure at one point) that the next rate rise would come in May. But the probability of this outcome has sunk dramatically in recent weeks following weak q1 GDP growth, a larger than expected fall in inflation and comments from Governor Carney last month indicating that a May rise was far from a done deal.
“We have had some mixed data”
“We are conscious that there are other meetings over the course of this year”.
Mark Carney - 19th April
As with any MPC decision it must be data driven. With that in mind we’ve taken a look at the key data points which are likely to effect MPC members thinking.
Ultimately we have concluded that, on balance, the recent data and outlook do not make a convincing case for a rate rise in May. We have summarised the arguments for and against in the below table. In particular, we believe if members did not vote for a rate rise last time – the vote was 7 v 2 – we do not see what would compel them to change their mind now. As ever the wording and tone in the accompanying minutes and press release will be watched closely, in the hope of gaining a steer on future policy announcements.
With markets also expecting the Bank to revise down their forecasts for GDP growth for 2018, down from 1.8% to 1.5%, we will be back tomorrow with a blog on the key takeaways from Super Thursday. Stay tuned.