The Bank of England’s MPC was surprisingly unanimous in holding the base rate at 0.5% -after six months of voting against his MPC peers, Ian McCafferty voted with them due to sluggish inflation.
Azad Zangana, senior European economist at Schroders, believes this change in McCafferty’s vote gives an insight into the MPC’s view of UK economic growth.
“The shift in voting suggests that the balance of risks has shifted to the downside on growth and inflation,” he said.
“Indeed, the MPC meeting minutes suggest that the worsening international outlook has adversely impacted global commodity prices, international trade and has tightened global financial conditions. These factors are likely to be having a negative impact on UK growth.
“The Bank not only lowered its forecast for GDP growth in the near term, but also for inflation as lower energy prices are expected to keep overall cost pressures near zero for longer.”
Pantheon Macroeconomics chief UK economist Samuel Tombs predicted a rate rise in the third quarter of 2016 and Capital Economics UK economist Ruth Miller opted for the fourth quarter.
Tombs, who was still expecting a Q2 increase as of last month, said: “The Committee still looks primed to move quickly to raise rates in the second half of this year, provided the UK votes to remain in the EU.
“The MPC believes that the remaining slack in the economy will have been eliminated by the end of this year, and will want to start raising rates from their emergency low levels before that point is reached.
“Indeed, with the labour market continuing to tighten, core inflation now on a strengthening trend and productivity growth still weak, we still think that the committee could raise interest rates in Q3.”
Miller, whose firm Capital Economics predicted a rate hike in May last month, said: “Given that the MPC has not sent any signals that it is even thinking about preparing the ground for a rate rise, and a June EU referendum now looks likely, the chance of a rate hike in the first half of this year looks slim.
“Nonetheless, we still think that markets have gone too far in not expecting a rate rise until 2018. We still think that a rate rise this year is likely, and now expect the MPC to hike Bank Rate in November 2016. “