Interest rate rise not expected as case ‘watered down’ by inflation dip

Rates unlikey to change on Thursday despite pressure from some quarters
Rates unlikey to change on Thursday despite pressure from some quarters

The Bank of England is expected to keep interest rates on hold next week after inflation dipped in June and economic growth continues to stutter.

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.