UK interest rates may not rise in May 2018.
High Street Squeeze
The expectation that the Bank of England will raise UK interest rates in Spring may be incorrect according to indications from Mark Carney, Governor of the Bank of England. Mr Carney said: “I don’t want to get too focused on the precise timing – it is more about the general path. We have had some mixed data. On the softer side, some of the business surveys have come off. Retail sales have been a bit softer – we are all aware of the squeeze that is going on in the high street“.
Mr Carney told the BBC that although more interest rate increases will be coming in the next few years some of the most recent economic data has proved softer and drops in inflation have been quicker than originally predicted in February.
City analysts and investors have been predicting an interest rate hike between 0.5% and 0.75% when the Bank of England’s monetary committee meet next. But, while speaking with the BBC during a trip to Washington in April, Mr Carney said that a rate rise is not a foregone conclusion and more data will be considered prior to the meeting. He said: “We’ll sit down calmly and look at it all in the round. I am sure there will be some differences of view, but it is a view we will take in late spring, conscious that there are other meetings over the course of this year“.
Brexit Shadow
Mr Carney also added: “The biggest set of economic decisions over the course of the next few years are going to be taken in the Brexit negotiations and whatever deal we end up with. And then we will adjust to the impact of those decisions in order to keep the economy on a stable path“.
UK interest rates were raised in November 2017, for the first time in ten years, and currently the headline borrowing rate is 0.5%.
Statistics published on 18 April showed an unexpected drop in inflation from 2.7% in February 2018 to 2.5% in March. The Office for National Statistics will be publishing the 2018 first-quarter growth figures in week commencing 23 April, and it’s anticipated that Bank of England policymakers will consider this economic data alongside the data already published.
News of the unexpected drop in inflation caused GBP to slump on global foreign exchange markets.