City A.M.’s rate-setting committee vote to hold interest rates as Brexit uncertainty peaks

The Bank of England must hold interest rates as Brexit uncertainty looks set to continue beyond 29 March, City economists have said.

The Bank’s rate-setting monetary policy committee (MPC) will announce its decision at midday on Thursday and is expected to leave rates unchanged at 0.75 per cent.

Read more: Bank of England leaves policy unchanged amid “greater uncertainty”on Brexit

All but one of City A.M.’s shadow monetary policy committee voted to hold interest rates, citing Brexit uncertainty and softening economic activity.

This month’s guest chair Vicky Pryce, economist at CEBR, said: “The time is not ripe for any unsettling of markets by raising rates given the increased Brexit uncertainty.”

She added that global trends were not encouraging and that the Office for Budget Responsibility cut its growth forecast last week.

The panel noted strong labour market data, including accelerating wage growth and record employment but said it was still appropriate for the Bank to adopt a “wait and see” approach.

Read more: US Fed holds dovish line on interest rates

Several members of the panel called for the Bank to signal rate rises ahead in the event of a long delay to Brexit or an agreed deal.

But Janus Henderson Investors’ analyst Simon Ward called for the Bank to cut interest rates as the economy was at “stall speed” with broad money growth at a seven-year low.

Guest Chair: Vicky Pryce, CEBR

Hold

The time is not ripe for any unsettling of markets by raising rates given the increased Brexit uncertainty.

Higher real wages and record low unemployment should not obscure the fact that employment continues to grow for a while even when the economy slows down.

Global trends are not encouraging and the OBR last week cut both its growth and inflation forecast for 2019.

Although January GDP data was strong, part of this may have been due to stockpiling for fear of no deal Brexit and latest PMIs suggest only weak growth ahead.

Ruth Gregory, Capital Economics

Hold

Hold for now. But given solid wage growth, signal that rate rises are on their way this summer if there is a long delay to Brexit or a deal is agreed.

Jeavon Lolay, Lloyds Bank

Hold

Brexit negotiations remain key in to the UK outlook. The softening in global and UK activity indicators also signal caution at this time, notwithstanding recent robust UK labour market data.

Simon Ward, Janus Henderson

Cut

The economy is at stall speed, while annual broad money growth has plunged to 1.7 per cent, a seven-year low, signalling weak prospects. Labour market strength is a lagging indicator.

Mike Bell, JP Morgan Asset Management

Hold

With decent wage growth on the one hand, versus ongoing business and consumer uncertainty over Brexit on the other, hold, until a deal or long extension is agreed.

Simon French, Panmure Gordon

Hold

Despite the recent strong jobs data, underlying UK inflation remains modest. With a range of Brexit outcomes still possible it makes sense to leave monetary policy unchanged.

Tej Parikh, Institute of Directors

Hold

Even with an orderly Brexit the case for a hike wouldn’t be clear-cut. With question marks over the exit process remaining and the economy’s near-term path foggy, it’s best to wait.

Kallum Pickering, Berenberg

Hold

Peak Brexit uncertainty warrants a cautious wait and see approach for now. The next hike should come if and when the hard Brexit risk is off the table.

James Smith, ING

Hold

Brexit uncertainty leaves little choice but to keep policy unchanged, and there’s limited need to prime markets for a near-term rate hike. However faster wage growth could still justify a rise later in 2019.