Cascade Commentary

MPC maintains Bank Rate at 0.75% while signalling for future rate rises

May 2019

The Monetary Policy Committee (MPC) has voted unanimously to maintain Bank Rate at 0.75% in minutes released from its May 2019 meeting. Despite no action being taken, data released in the quarterly economic report indicates that under a scenario of only one interest rate increase, excess demand and rising inflation over the next three years would lead the economy to overheat. Such data led Governor Mark Carney to state that should such forecasts realise over the near-term, greater withdrawal of monetary support will be resultantly required and to a greater extent than the market currently expects so as to maintain inflation around the 2% target level. 

Inflation figures released for March 2019 showed that inflation had fallen below the 2% target level to 1.9% as measured using the Consumer Prices Index, with the biggest downward contributors originating from price falls across a range of recreational and cultural goods, food and motor vehicles. Annual growth rates for the economy over the next two years are expected to average at 2.1% while unemployment is forecast to reduce to 3.5% by 2022. While the economy is forecast today to run at an unsustainably high level over the coming years, inflation is forecast to rise to only 2.16% during 2021, surely within a range of tolerance for the Bank of England's 2% target level. 

Although Governor Carney was firm in his message for multiple rate hikes, sterling had not moved against the dollar and economic data indicates a continued expectation of only one rate hike over the next three years. While the UK's central bank was clear in its intent for further increases to bank rate, it reaffirmed that these would take place "at a gradual pace and to a limited extent", particularly against the ever moving Brexit backdrop.

Many economists believe a rate hike unlikely in the upcoming June or August meetings admidst worries that Brexit could derail the economy in the event of a "no-deal" scenario in October 2019. What appears clear is that in the absence of Brexit or indeed Brexit uncertainty, the MPC would have already raised interest rates by now. 

The MPC next meet in June 2019 with minutes to be released on June 20th. 


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