abrdn: Division at BoE regarding interest rate decision to be taken

abrdn: Division at BoE regarding interest rate decision to be taken

Interest Rates Central bank UK

Luke Bartholomew, Senior Economist at abrdn comments on the Bank of England meeting next week:

'The Bank of England is set to keep interest rates on hold next week. The voting breakdown of policy makers is expected to reveal that the Monetary Policy Committee remains deeply divided about the appropriate course of policy, with at least one member likely to vote for a cut, while others might still prefer to tighten policy.

This division on the MPC reflects the conflicting signals about the economy now. Underlying growth is very weak, albeit it seems the UK may already have emerged from its recession, with stronger real income growth helping to boost sentiment and activity. Wage growth is slowing, but is still too strong for the Bank’s comfort, and uncertainty around the quality of the unemployment data makes it difficult to assess the true health of the labour market right now. Inflation is set to fall rapidly over the coming months thanks to falling energy prices, but there are big questions about whether it will stay low or start to rise again later this year.

Given these uncertainties we expect the BoE to wait until at least June before delivering the first interest rate cut as it waits for a stronger signal from the data, and for the impact of the April price and wage round to become clearer. Once cuts start, we expect interest rates to fall somewhat more than what the market is anticipating as persistently low growth and poor supply potential should pull UK policy rates lower over time.'