May 10, 2021
Business

Three reasons why the Bank of England wont raise interest rates

The Bank of England should keep interest rates on hold tomorrow due to uncertainty over Brexit, global trade tensions, and recent weak UK data, City A.M.s shadow monetary policy (MPC) has argued.

Read more:UK inflation falls to Bank of England target

Ongoing uncertainty over how Brexit will turn out, and the increasing chances of “no deal” under a Boris Johnson premiership, mean Mark Carneys Bank will most likely wait until changing anything in the economy.

The raging US-China trade conflict has dragged down confidence worldwide. A rate hike would likely push up the pound, making UK exports less competitive at an already difficult time.

Recent data from the UK economy has suggested momentum may be slowing. GDP fell by 0.4 per cent month on month in April, official figures showed. Today official statistics showed inflation cooled to two per cent in May from 2.1 per cent in April.

What City A.M.s shadow MPC decided

Guest chair: Mike Bell, JP Morgan Asset Management

Hold

With wages rising by 3.4 per cent year on year, unemployment at 3.8 per cent, and the Royal Institute of Chartered Surveyors housing market survey improving, its possible to make the case for a rate rise. However, several surveys suggest that the outlook for the UK and global manufacturing industry is deteriorating. Job growth in the UK and US has also slowed. Against this backdrop and with local and global political uncertainty still elevated, its best to stay on hold and wait and see whether or not the weaker parts of the data improve.

James Smith, ING

Hold

While stockpiling has exaggerated the recent dip in economic activity, growth is nevertheless set to remain fragile in the near-term as no-deal Brexit concerns begin to resurface.

Vicky Pryce, CEBR

Hold

Stockpiling, which helped activity early in the year, has now gone into reverse. Price pressures remain subdued, world economic prospects have worsened and Brexit uncertainty has if anything increased.

Simon Ward, Janus Henderson

Cut

Money growth remains too weak. GDP is on course to contract this quarter, inflation is quiescent and labour market strength has peaked, with vacancies falling for four straight months.

Read more: Pound falls as UK economy shrinks by 0.4 per cent in April

Jeavon Lolay, Lloyds Bank Commercial Banking

Hold

Continuing uncertainty around the global and domestic outlook argues for caution at this juncture. However, a case can be made for a modest tightening in policy if the uncertainty were to abate.
Kallum Pickering, Berenberg

Hold

Global uncertainties linked to trade wars and the China slowdown have increased while recent domestic economic datRead More – Source

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