August should be considered a ‘live’ meeting as, if it wasn’t for the uncertainty created by Brexit, the Bank of England (BoE) may well have hiked rates today. Instead the Monetary Policy Committee left the Bank Base Rate at 0.75%, with no members dissenting, and emphasised a “gradual pace” of rate hikes again.
Domestic data has picked up with strong retail sales, a tightening labour market and a high manufacturing PMI given the slowdown in global trade, particularly in Europe and Asia. Meanwhile, underlying inflation pressures have increased with average weekly earnings rising 3.5% a year, the highest since the 2008 crisis. This was reflected in higher growth forecasts from the BoE today, and a CPI forecast that remains above target in two years’ time. Ordinarily, we believe they would be hiking rates with this backdrop.
Brexit, of course, looms over the Committee – this may be the reason why, however, they decide to hike rates in the summer. As we get closer to the new Brexit deadline of 31 October, the BoE won’t want to add to the uncertainty and August will be their last chance to hike this year. If the data continues to improve at home and abroad, the BoE may well take it.