In­fla­tion and poor growth see Bank ditch rate rise plans

The Sunday Telegraph - Money & Business - - Business - By Tim Wal­lace

IN­TER­EST rates could stay low for an­other two years, as fall­ing in­fla­tion and weak eco­nomic growth force the Bank of Eng­land to scrap plans to push up rates in the com­ing months.

Mark Car­ney is ex­pected to hold rates at 0.5pc at Thurs­day’s Mon­e­tary Pol­icy Com­mit­tee meet­ing, post­pon­ing a highly-an­tic­i­pated rate rise for at least three months. The freeze will dis­ap­point savers who have laboured un­der his­tor­i­cally low rates for al­most a decade – and a boon to bor­row­ers who get ex­tra time with cheap money.

But econ­o­mists now sus­pect that in­fla­tion will keep fall­ing quickly to­wards the Bank’s 2pc tar­get, mak­ing it harder for pol­i­cy­mak­ers to raise rates.

Poor GDP growth at the start of this year and signs of a slow­ing global econ­omy could also dent the Bank’s longert­erm in­fla­tion es­ti­mates.

If that forces it to cut back its in­fla­tion fore­cast then the case for higher rates could evap­o­rate al­to­gether.

“They are stuck. The Bank can’t raise rates now, the eco­nomic num­bers have been too weak re­cently,” said Martin Beck at Ox­ford Eco­nom­ics. “They should not have raised rates in Novem­ber, closed the term fund­ing scheme or wor­ried that credit growth was too strong – those three things have con­trib­uted to the econ­omy slow­ing.”

Mar­kets are cur­rently pric­ing in only two rate rises by Au­gust 2019, but Ge­orge Buck­ley, econ­o­mist at No­mura, thinks even this may be too many if in­fla­tion is slow­ing sharply.

“Should the Bank pub­lish a fore­cast with in­fla­tion be­low tar­get based on mar­ket rates that would be quite a state­ment, as it would im­ply that even lim­ited mar­ket pric­ing for rate hikes might prove too much,” he said.

Uni­credit’s Daniel Ver­nazza be­lieves it will be at least an­other year be­fore rates rise to 0.75pc. Kal­lum Pick­er­ing at Beren­berg Bank fears the Bank has missed its chance. “They should have hiked by this stage of the eco­nomic cy­cle, but they can­not do it now be­cause of the soft data,” he said.

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