Wednesday 01 May 2019 4:58 pm | Updated: Sunday 02 June 2019 10:54 pm

City A.M.’s shadow MPC votes to hold interest rates despite recent sunnier data

Ongoing Brexit uncertainty means the Bank of England should hold interest rates steady tomorrow, City economists have said, despite the economy recently showing signs of strength.

The Bank’s monetary policy committee (MPC) will at midday tomorrow announce its latest interest rate decision, along with its inflation report, its first since Britain’s membership of the European Union was extended until 31 October.

The committee will have digested recent positive signals from the economy in the run up to their decision over whether to change the 0.75 per cent headline rate. The economy grew at a decent clip in the first quarter, with employment rising 179,000 in the three months to February.

With a no-deal Brexit averted for the time being and rising oil prices threatening to push up inflation, an interest rate hike by Threadneedle Street is a possibility – and something City A.M.’s shadow MPC guest chair, Kallum Pickering of Berenberg, calls for.

However, seven shadow MPC members call once again for the Bank to keep rates on hold due to clouds of uncertainty still hanging over the economy.

City A.M.'s shadow MPC

Guest chair: Kallum Pickering, Berenberg

Hike

Despite ongoing Brexit uncertainty, medium-term inflation risks are building in three areas. Firstly, financial and economic participants’ inflation expectations are elevated and rising.

Secondly, demand growth is far exceeding the rise in productive capacity linked to softness in private business investment.

And thirdly, wage cost pressures are mounting as wage increases outpace productivity growth. The case to wait until after Brexit is resolved has weakened following the latest delay that could last six months. The risk of falling behind the curve now exceeds the risk from adding to current anxieties.

Simon French, Panmure Gordon

Hold

The UK economy is showing signs of a split personality. Consumers are carrying on largely unimpacted by Brexit developments. By contrast business investment and the UK’s trade performance remains weak. Until it becomes clearer which sentiment will win out, rates should be left on hold.

Ruth Gregory, Capital Economics

Hold

Hold for now, despite the slew of stronger data. Some activity may have been brought forward ahead of the original Brexit date. Meanwhile, stronger pay growth has yet to show up in inflation.

Simon Ward, Janus Henderson

Cut

Money growth is too low to achieve the inflation target over the medium term. Brexit preparations have temporarily supported activity but payback is imminent. Labour market strength is ebbing.

Jeavon Lolay, Lloyds Bank

Hold

Based on UK data alone, the case for a rate hike has on balance strengthened since February. However, continuing uncertainty around the global and domestic outlook argues for caution at this juncture.

Vicky Pryce, CEBR

Hold

Precautionary stock-building, higher wages and good employment data are giving a temporary boost to growth but risk to inflation remains low while the Brexit extensions have increased business uncertainty.

Tej Parikh, Institute of Directors

Hold

Higher wages and rising oil prices imply a pick-up in inflation is just around the corner but this has to be balanced against ongoing Brexit considerations, which make a rate rise risky.

Mike Bell, JP Morgan Asset Management

Hold

With the recent rise in productivity-adjusted labour costs the case for a rate rise is building, but it is worth waiting for more evidence that the global manufacturing slowdown is behind us.

James Smith, ING

Hold

Aside from decent wage growth, there are few reasons to raise rates right now. Lingering no deal Brexit concerns will continue to restrain economic activity in the near-term.