Cascade Commentary

The Monetary Policy Committee votes unanimously in August meeting 9-0 to increase Bank Rate by 0.25 percentage points to 0.75%. 

The Bank of England increased interest rates for the second time in over a decade earlier this month after the UK economy performed as expected since May's meeting. The committee voted unanimously by 9-0 to increase Bank Rate by 0.25%, to maintain the stock of sterling non-financial investment-grade corporate bond purchases and to maintain the stock of UK government bond purchases. 

In announcing the decision, the committee recognised the ongoing impact to the UK economy of the negotiations to leave the European Union, particularly on sterling in the near-term which depreciated slightly since the last meeting. Brexit negotiations continue to heighten uncertainty in the market, which has dampened growth below pre-referendum expectations.

In July, Governor Mark Carney warned of the impact of protectionist policies emerging internationally in the US-China trade war during his keynote speech at the Great Exhibition of the North. Carney referenced the slowdown in global growth and the minutes released from August’s meeting touched upon this too. The MPC minutes however stated that world growth should remain above the estimates of growth in potential supply despite this emerging shift. 

GDP growth in the UK was reported at 0.2% in the three months to May, higher than the three months to April, which had remained flat due to the poor weather conditions at the start of the year affecting the retail sector. Construction output in the dry summer months has increased driving the economy upward and it is expected that growth for Q2 will continue to rebound to 0.4%. 

Annual inflation figures in June were weaker than expected at 2.4% while the UK labour market has continued to tighten. Unit labour cost growth has firmed and this is not expected to loosen in the near-term. Inflation is expected to remain above the 2% target level during the ongoing Brexit negotiations and corresponding uncertainty. As a result of this, the committee felt a further rate increase at this time was appropriate. 

The committee next meet on 13 September 2018. The outlook remains consistent that an ongoing tightening of monetary policy will be appropriate. We will keep you abreast of further updates as they reach us. 

Loading content...