- Rates decision on Thursday unlikely to see a shock rise
- Article 50 may be triggered as early as Tuesday
- No rise would mark exactly eight years of no upward movement
- Investec believe rates won’t rise until the end of 2019
The Bank of England will keep interest rates firmly on hold this week as policymakers remain in wait and see mode as Britain prepares for divorce with the EU, economists predict.
The Government could trigger Article 50 as early as Tuesday and economists believe the Bank’s Monetary Policy Committee will unanimously vote to hold rates at 0.25 per cent two days later in the face of potential economic upset from Brexit negotiations.
This is despite a growing number of rate-setters on the MPC being uncomfortable with soaring inflation. It would mark exactly eight years of no interest rate rises.
On hold: Economists believe interest rates will remain at 0.25% this week
Howard Archer, at IHS Global Insight, said: ‘We believe the Bank of England will remain pretty tolerant on the inflation overshoot given the prolonged, highly uncertain outlook that the UK economy is likely to face as the Government negotiates the exit from the EU.’
Given the inaccurate forecasts ahead of the Brexit vote, there is little certainty of what the upcoming negotiations will mean for the UK economy.
Accompanying minutes from the Bank will be closely watched for its views on the path ahead for growth and the pound, but the Bank is set to want to keep a steady monetary path until the impact becomes clearer.
The decision also comes in the ‘immediate aftermath of significant global economic events’, according to experts at Investec.
The US Federal Reserve is likely to have raised its benchmark rate just the night before, while there is also a Congress vote on the government debt ceiling, as well as the Dutch general election.
Britain’s economy has so far confounded any expectations for a slowdown amid political turmoil, with the latest forecasts from the Office for Budget Responsibility showing a sharp upward revision to its outlook for UK gross domestic product this year from 1.4 to 2 per cent.
But the fiscal watchdog painted a gloomier long-term picture, downgrading next year’s growth from 1.7 to 1.6 per cent and cutting forecasts for 2019 from 2.1 to 1.7 per cent, before predicting 1.9 per cent growth in 2020 and 2 per cent in 2021.
The Bank has also upgraded its GDP forecasts twice since November, while official figures showed growth was even more robust than first thought in the final three months of 2016, at 0.7 per cent.
There may be clouds on the horizon, though, as surging inflation begins to rein in consumer spending.
Britain’s high street suffered its worst February since 2009, largely as consumer spending came under pressure, according to the latest BDO High Street Sales Tracker.
Inflation reached a two-and-a-half year high of 1.8 per cent in January as food and fuel prices pushed up the cost of living, while the bank expects inflation to rise close to 3 per cent later this year due to the weak pound.
Economists believe this will not be enough to persuade the Bank to shift its stance on rates.
Investec is pencilling in rates to remain on hold until the fourth quarter of 2019.
Mr Archer added: ‘While we believe the next move in interest rates will be up, we do not see this happening before 2019 and it could very well be delayed beyond then.’