Morning Wire’s shadow monetary policy committee unanimously vote to hold interest rates

The Bank of England has no choice but to hold interest rates when its monetary policy committee meets tomorrow as Brexit uncertainty continues to loom large, city economists have warned.

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

Morning Wire’s shadow monetary policy committee unanimously voted in favour of holding rates for a third consecutive month.

In November City A.M’s panel of economists and experts voted to hold, with the majority citing Brexit concerns.

An eventful six weeks later and the panel has maintained its view that there still was not enough clarity around Brexit to hike rates despite strong wage growth and low unemployment.

The panel noted that recent accelerated wage growth, which hit a ten-year high earlier this month, pointed towards potential future hikes.

This month’s chair Mike Bell, market strategist at JP Morgan Asset Management said global risks, trade tensions and the negative impact Brexit was having on consumer and business confidence meant it was not the time to raise rates.

Several panellists hoped the Bank would signal that further hikes could be on the way into next year.

But Janus Henderson Investors’ analyst Simon Ward said the most recent hike in August was looking like a “dreadful mistake” as the government appeared prepared for a no-deal Brexit.

The UK inflation rate dropping to 2.3 per cent in November will also satisfy the MPC and was below the Bank’s expectation of 2.5 per cent.

Guest Chair: Mike Bell, JP Morgan Asset Management

Hold

On the one hand, accelerating wage growth and low unemployment argue in favour of higher interest rates.

On the other hand, global risks are rising with a slowdown in Europe, a late cycle US economy and continued trade tensions.

Add into the mix the ongoing uncertainty around Brexit, and the negative effect it is having on consumer and business confidence and it feels like now is not the time to raise rates.

Ultimately, the downside risks to growth seem greater than the risk of a sharp increase in inflation.

Ruth Gregory, Capital Economics

Hold

Hold for now given the signs of cooling economic activity and the risk of a “no deal” Brexit. But with domestic price pressures building, signal further hikes are on the way.

Jeavon Lolay, Lloyds Bank

Hold

There are further indications that demand has been affected by rising uncertainty relating to Brexit. The current stance remains appropriate as we wait for greater clarity in the coming months.

Simon Ward, Janus Henderson

Hold

With the global and UK economies rapidly losing momentum, and the government apparently prepared to risk a crash Brexit, the August hike is beginning to look like a dreadful mistake.

Vicky Pryce, CEBR

Hold

While wage growth has picked up, manufacturing went into reverse again after the summer boost, services and retail spending remain under pressure and business optimism is suffering as the Brexit approaches.

Simon French, Panmure Gordon

Hold

With the recent fall in the global oil price, uncertainty over the supply side changes due to Brexit and scant evidence of sustained core inflation there no urgency to change the bank rate.

Tej Parikh, Institute of Directors

Hold

It’s best for the Bank to hang tight for now, at least until the nature of Brexit clears up a little – anything else would be a stab in the dark.

Kallum Pickering, Berenberg​

Hold

Recent upside surprises in wages signal the need for a continued gradual tightening. However it is better to hold off for now to see how Brexit plays out.

Jacob Nell, Morgan Stanley

Hold

Given the range of Brexit outcomes, the MPC should wait for more clarity while noting that an economy running at capacity and pay at a cycle-high point to higher rates.