Interest rate rise not expected as case '˜watered down' by inflation dip

Economists believe the Bank’s Monetary Policy Committee (MPC) will keep rates at 0.25% on Thursday, despite three out of eight policymakers calling for a hike last month and amid conflicting public pronouncements in recent weeks.

Prior to June’s inflation reading of 2.6%, there had been growing clamour for a rate rise as a Brexit-fuelled increase in the cost of living ramps up pressure on hard-pressed households.

While remaining above the Bank’s 2% inflation target, it represented an easing from the previous month’s 2.9%.

Howard Archer, chief economic adviser to the EY ITEM Club, said: “The odds now very strongly favour the Bank of England keeping interest rates at 0.25% next Thursday after the August MPC meeting.

“The case for any near-term interest rate hike has been watered down by inflation dipping in June, while UK growth remains stuck in a low gear.”

Recent GDP figures showed growth was limited to 0.3% in the second quarter in what the Office for National Statistics described as a “notable slowdown” for the economy.

There have also been signs of growing division among rate setters, with Ian McCafferty, Kristin Forbes and Michael Saunders voting for a rise in June and chief economist Andy Haldane suggesting he may support a “prudent” increase this year.

Another MPC member, Gertjan Vlieghe, has insisted that it would be wrong to raise borrowing costs at a time of slowing consumer spending.