Bank set to hold rates at 0.75% after August hike
Bank of England policymakers are set to sit tight on interest rates next week after last month’s milestone hike and amid a mixed performance across the economy.
The Monetary Policy Committee (MPC) is expected to vote for no-change, having increased rates to the highest level in nearly a decade last month – to 0.75% from 0.5%.
Governor Mark Carney said in August that rates would need to rise further to bring inflation back to the 2% target over the next few years, though he stressed hikes would be “limited” and “gradual”.
But economists are not expecting another rise any time soon, with increasing anxiety over Brexit negotiations seen as holding back growth.
Closely-watched industry surveys have pointed to stable growth of 0.4% in the third quarter, but this is thanks to a robust performance among services firms offsetting a dismal showing from the manufacturing and construction sectors.
There had been initial fears the Bank may have acted too soon to raise rates after official figures for the second quarter showed that while growth rebounded overall by 0.4%, expansion stuttered in the final month, with growth of just 0.1% in June.
Howard Archer, chief economic adviser at the EY ITEM Club, said: “The mixed set of August purchasing managers indices reinforce belief that it will be some considerable time before the Bank of England raises interest rates again after August’s hike from 0.50% to 0.75%.
“It looks unlikely that interest rates will rise again until after the UK
leaves the EU in March 2019 given the major uncertainties that are likely to occur in the run-up to the UK’s departure.”
The rates decision comes after Mr Carney effectively confirmed plans to stay on past his current departure date of June 2019 to support the UK through Brexit.
He told MPs on Tuesday he was “willing to do whatever” he can to help promote a smooth Brexit and transition at the top of the Bank.
It followed mounting press speculation over whether he would stay on until 2020.
But questions have since been swirling over the talks between Mr Carney and the Chancellor, with some concerned about the lack of transparency.
Former MPC member Andrew Sentance was reported hitting out at process.
He said: “It seems an awful lot is happening in this appointment process behind the scenes and that is not good in terms of the independence of the Bank of England.”
In the hearing with MPs, Mr Carney and other Bank chiefs also warned over the possibility of significant price hikes in the event of a no deal scenario, which the governor said would send the pound lower.
Inflation appears to be back on the rise already after recent brief respite, rising in July for the first time since November, to 2.5% from 2.4% in June, although this was largely due to higher transport costs.