London. Bank of England policymakers will probably keep policy on hold on Thursday despite warnings that interest rates will have to rise in the future.
All but one of the 20 analysts surveyed by Bloomberg predict a unanimous vote to keep the benchmark at 0.75 per cent. Political turmoil, a lack of clarity about Britain’s departure from the European Union, weaker-than-expected economic data and signs the US Federal Reserve is on course to reverse its recent hiking path, provide reasons to stay their hand.
An eighth straight unanimous decision may mask more diverging views among the MPC though. In a speech Monday, Michael Saunders indicated that he sees no need to wait until all political uncertainty around Brexit is resolved before raising rates, while chief economist Andy Haldane said the time is nearing when a hike is needed to keep inflation pressures in check.
On the other side of the argument, Gertjan Vlieghe said global and domestic risks had intensified in the past month and the outlook “has got a little worse” since the MPC’s last decision and forecasts in May. Then, Governor Mark Carney said the BoE stands ready to raise rates by more than investors are predicting if the UK successfully manages a smooth Brexit.
Figures this week showed a larger-than-expected slowdown in growth in April, and the National Institute of Economic and Social Research predicts the economy is likely to contract 0.2 per cent in the second quarter.
What Bloomberg economist says
“We continue to expect growth to remain subdued for the rest of this year, forcing the Bank of England to keep interest rates on hold until mid-2020.”
Dan Hanson, economist
Meanwhile, purchasing managers indexes for May showed contractions in construction and manufacturing, and retail sales in a slump, leaving the economy “close to stagnation,” according to IHS Markit. Reports on house prices, inflation and retail sales are all scheduled for release ahead of the BoE’s announcement.