Morning Wire shadow MPC: Bank of England should keep interest rates glued to the floor
The Bank of England should keep interest rates at record lows today, Morning Wire’s shadow monetary policy committee has said.
While sentiment in financial markets has improved after a turbulent start to the year, economic growth has slowed. Inflation remained far below its two per cent target at 0.3 per cent in January.
The UK’s labour market is strong with unemployment at a 10-year low. Yet regular pay growth remains historically subdued at 2.2 per cent, but growth in the money supply and bank lending are robust.
The Bank of England’s monetary policy committee voted unanimously to hold interest rates in February. It was their first unanimous vote since the summer after Bank official Ian McCafferty changed to a “hold” vote from “raise”.
Minutes of the meeting showed he reversed his position due to the failure of annual earnings growth to pick up. The Bank’s headline policy rate has been kept 0.5 per cent since 2009 in a bid to boost economic growth and revive inflation.
Our panel’s guest chair for this month: Melanie Baker, Morgan Stanley
Hold. Pay growth has slowed and inflation is close to zero; there is no urgency to raise interest rates. The labour market slack has been shrinking, but slower pay growth is consistent with there being a bit more labour market slack than the Bank had been assuming. GDP growth is likely to slow this year and worries about global growth have increased. If the outlook worsens significantly further, rate cuts may need to be considered.
James Sproule, Institute of Directors
Raise. The damage of rates too low for too long has been done, but absolute level of rates remains remarkable expansionary.
Simon Ward, Henderson
Raise. The economy is showing resilience, while rising money/credit growth and accelerating unit labour costs suggest that inflation will rebound sharply in 2017.
George Buckley, Deutsche Bank
Hold. Despite downside risks to growth and low inflation, we expect both to rise in the second half of 2016 – were this to occur no further easing would be required.
Vicky Pryce, CEBR adviser
Hold. Weaker business confidence and lower investment reflecting more uncertainty will be made worse by the spending cuts and tax rises in the Budget.
Vicky Redwood, Capital Economics
Hold. The recovery has slowed and global risks remain. But the outlook has not worsened enough to warrant a rate cut.
Adam Chester, Lloyds Bank
Hold. Financial market sentiment has improved in recent weeks, but low inflation and heightened uncertainty mean rates should remain on hold.
Kallum Pickering, Berenberg Bank
Hold. Global economic and financial market risks need to settle further and domestic growth needs to accelerate before hiking.
Ross Walker, RBS
Hold. Data continues to deteriorate and inflation pressures remain muted. I do not expect any material loosening of the UK’s fiscal stance.