What next for interest rates?
What next for interest rates? May hike off the table as forecasts drop from ‘almost certain’ to less than 5% chance
Expectations of a May rate rise have been killed off by poor data
Struggle on High Street and 0.1% GDP growth have seen chances of a rise drop
A fortnight ago markets were pricing in a near 90% certainty of a rate rise in May, that has now fallen to less than 5 %.
A round of disappointing economic data, struggles on the High Street, falling inflation and a bit of dampening from Bank of England Governor Mark Carney has put paid to expectations of a move up to 0.75%.
Pointing out this reversal of forecasts, Panmure Gordon chief economist Simon French highlighted declining borrowing on credit cards and loans.
‘There will be plenty inside the Bank of England that will welcome this – but far from clear that UK households can keep spending given other headwinds to disposable income,’ he tweeted.
Inflation has fallen from 3% in January to 2.5% in March, easing some pressure on the Bank of England.
Any worries that higher wage growth – which has now entered real pay rise territory – would make monetary policy committee members think the economy was overheating have been dispelled by news from consumers and GDP data.
GDP growth for the first quarter dropped to just 0.1% – something that was blamed on some winter weather and the Beast from the East.
But the High Street isn’t just struggling because people stayed home in the cold, borrowers are taking on less debt, which in the absence of meaningful pay rises in recent times spells less money for buying stuff.
Rates were held at 0.5% in April and the Bank’s thoughts will become clearer when the next rate decision arrives alongside May’s quarterly inflation report.