The BoE’s nine rate-setters probably voted unanimously at their September meeting to keep Bank Rate at 0.25 percent, the lowest level in the BoE’s 322-year history, according to a Reuters poll of economists.
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But in the light of recent sales reports showing more buoyancy than expected, that prediction has already been revised upwards to 0.3 per cent.
Retail sales volumes rose by 6.2 per cent compared to a year ago the Office for National Statistics said.
Recent closely-watched industry data has suggested that major sectors of the economy rebounded strongly in August, with the powerhouse services industry seeing a record-breaking jump in activity after a shock contraction in July.
Having lost ground in the previous session, after the BoE opted to leave interest rates unchanged, the pound extended its losses on Friday (16 September). If the assessment at that time is still seen as broadly consistent with the August inflation report, a majority of MPC members still expect to support a further cut in Bank rate.
In a bid to cushion any adverse impact from “Brexit”, policymakers had lowered the key rate by a quarter-point in August, which was the first cut in more than seven years. Against the euro, sterling slipped 0.2 percent to 85.12 pence.
“Despite the near-term resilience of some sectors of the United Kingdom economy, the Bank of England clearly now still suspects that the economy will suffer appreciably from prolonged heightened uncertainty as the United Kingdom negotiates with the European Union over their future relationship”, IHS Global Insight economist Howard Archer said.
“The important message here is that the MPC remains on course to ease further and the market was expecting too much of a shift on their part”, said Antoine Bouvet, a London-based rates strategist at Mizuho International Plc.
The BoE added it’s tough to predict economic growth for next year.
Jobs are a key indicator and the data suggest the pound’s 11 percent drop against the greenback since the June 23 vote to leave the European Union is helping United Kingdom companies stay competitive. The chances of a rate cut by the BoE later this year has also grown after comments made by the BoE, “it said the initial Brexit hit to Britain’s economy would be less severe than it expected only last month”. Although that could help exporters, it is likely to push up inflation, hurting the spending power of consumers.
Mr Jaturong said the committee expects headline inflation to return to the target band by year-end.
The British pound shed around 0.20 percent following the bank’s meeting and was trading at $1.3194 – roughly $0.04 higher than the post-Brexit low of $1.2798.
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The next MPC meeting will take place in November. “We remain of the view that inflation will start to rise during the final quarter of 2016, leading to a rate increase in the first half of 2017”.
