Investment Clock insights

No shocks from the Bank of England


Melanie Baker

13 September 2018

The Monetary Policy Committee (MPC) has voted unanimously for UK interest rates to remain on hold at 0.75%. This isn’t surprising since it was only August that the Committee voted unanimously to raise rates, with their forecasts signalling that they would expect to remain on hold for several quarters. The balanced tone of the minutes today remains consistent with ‘gradual and limited’ further rate rises. 
Not much has changed since early August and they see their August forecasts as “broadly on track”, but pay growth has risen and activity data has been robust.  The Bank of England (BoE) staff nowcast has risen from 0.4% to 0.5%Q for Q3 GDP growth. 
The BoE’s tone on the growth outlook sounds fairly balanced though  and the Agents’ summary isn’t particularly upbeat either. Alongside that modest growth upgrade they flag that recent tariff announcements, if implemented, would have a “somewhat more negative impact on global growth” than they’d anticipated in August.  Closer to home, alongside more positive signals on consumer spending they also point to the “sharp fall” in the goods export orders Purchasing Managers’ Index (PMI) and evidence from PMIs/BoE agents suggesting that companies are becoming more uncertain about the economic outlook.
May still looks the next most likely date for a rate rise.  Uncertainty around Brexit suggests that they should tread cautiously in the meantime. Sharp further increases in wage growth or a disruptive Brexit are two of the key developments that would upset the monetary policy outlook. But, for now, it makes sense to stick with the central case. 
In our central case, there is a withdrawal deal and a transition period in place after Brexit. That forms the backdrop for a reasonable pace of UK growth next year. With the labour market looking tight, domestic inflationary pressure is likely to rise. Once at least some of the Brexit uncertainty has cleared after March next year, the stage looks set for another rate rise.
The Monetary Policy Committee (MPC) has voted unanimously for UK interest rates to remain on hold at 0.75%. This isn’t surprising since it was only August that the Committee voted unanimously to raise rates, with their forecasts signalling that they would expect to remain on hold for several quarters. The balanced tone of the minutes today remains consistent with ‘gradual and limited’ further rate rises. 

Not much has changed since early August and they see their August forecasts as “broadly on track”, but pay growth has risen and activity data has been robust.  The Bank of England (BoE) staff nowcast has risen from 0.4% to 0.5%Q for Q3 GDP growth. 

The BoE’s tone on the growth outlook sounds fairly balanced though and the Agents’ summary isn’t particularly upbeat either. Alongside that modest growth upgrade they flag that recent tariff announcements, if implemented, would have a “somewhat more negative impact on global growth” than they’d anticipated in August.  Closer to home, alongside more positive signals on consumer spending they also point to the “sharp fall” in the goods export orders Purchasing Managers’ Index (PMI) and evidence from PMIs/BoE agents suggesting that companies are becoming more uncertain about the economic outlook.

May still looks the next most likely date for a rate rise.  Uncertainty around Brexit suggests that they should tread cautiously in the meantime. Sharp further increases in wage growth or a disruptive Brexit are two of the key developments that would upset the monetary policy outlook. But, for now, it makes sense to stick with the central case. 

In our central case, there is a withdrawal deal and a transition period in place after Brexit. That forms the backdrop for a reasonable pace of UK growth next year. With the labour market looking tight, domestic inflationary pressure is likely to rise. Once at least some of the Brexit uncertainty has cleared after March next year, the stage looks set for another rate rise.

Past performance is no guide to the future. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.