No surprises with rate rise hold - EY ITEM Club

10 April 2014

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  • No surprises with rates again on hold at 0.5%
  • Benign outlook for inflation and cooling in the labour market support case for loose policy
  • We still expect the first rate hike in Q3 2015

Martin Beck senior economic adviser to the EY ITEM Club comments on today’s MPC decision:

“Inflation fell from 1.9% to just 1.7% in February –  under the MPC’s 2% target for the second successive month and slightly below the rate expected by the Committee in February’s Inflation Report. This made it no surprise that this month’s vote was to once again keep rates unchanged.

“Activity in the economy continues to power ahead, and the IMF’s recent upgrade to its UK growth forecast, pays tribute to this. The prospects for inflation continue to look very benign. Signs of a supermarket price war, recent company announcements of energy price freezes and falling import prices, thanks to the strong pound, will all support a further drop in inflation over the coming months.

“Meanwhile, the pace of expansion in the labour market has cooled, suggesting that slack in the economy is being used up at a slower rate. The rise in employment in the three months to January was the smallest since July, while the headline unemployment rate was above the MPC’s latest Inflation Report forecast.

“So the case for a rate hike continues to remain very weak – indeed, the MPC’s mandate, to keep inflation close to 2%, is likely to be missed with a substantial undershooting over the next few months. We expect rates to remain on hold until late 2015.”