Bank of England (AFP / Geoff Caddick)
London: Mark Carney signaled in June that a Bank of England (BoE) rate increase may be approaching. Economists doubt it’s here just yet.
The governor of BoE overseeing an economy that slowed sharply in the first half, will probably lower growth projections for the next two years when he presents the central bank’s latest forecasts next week, according to economists. The inflation outlook is expected to be unchanged. In addition to a loss of economic momentum, wage growth has disappointed this year, damping speculation that policy makers will raise interest rates any time soon to tackle faster-than-targeted inflation. The economy is too brittle to absorb tighter policy, and more knowledge of the details of the UK’s exit from the European Union is required before officials will act, according to analysts at Citigroup Inc.
“Even a small rate hike could have repercussions for financial conditions and the economy in its current fragile state,” economists Christian Schulz and Ann O’Kelly said in a note to clients on Friday.
“Until there is more clarity about the Brexit deal, which is unlikely before March 2019, the BoE will probably abstain from adding to that fragility by hiking.”
Economists predict the BoE will keep its key interest rate at a record-low 0.25 percent and leave the size of its quantitative-easing programme unchanged on August 3. Alongside the announcement, the Monetary Policy Committee will update forecasts in its quarterly Inflation Report, and Carney is due to hold a press conference to explain the decision. Investors will scour his comments for clues on his latest thinking on the potential longer-term threats from Brexit. At their last meeting in June, policy makers surprised investors when three out of the eight voters dissented in favor of higher rates and a fourth subsequently suggested he might follow suit. Since then though, the Office for National Statistics said there’s been a “notable slowdown” in the economy and inflation retreated from its recent high.
Analysts see the BoE keeping its key rate on hold until mid-2019, according to a Bloomberg survey.
