Figures from the Office of National Statistics (ONS) showed negative inflation falls of 0.1 per cent in the United Kingdom in April this year, and the consumer prices index fell slightly year-on-year.
This is not forecast that will change the outlook for rates, inflation is expected to soon pick up again as the effect of falling energy and petrol costs drops out of the equation. Monetary Policy Committee (MPC) minutes showed a unanimous vote to keep rates on hold at 0.5 per cent again in the May meeting and the forecast is for a late spring 2016 first move in the base rate.
Howard Archer, chief economist at IHS Global Insight, said:
“The May MPC minutes indicate that there is little likelihood of the Bank of England cutting interest rates despite the UK dipping into deflation in April, and they appear to reinforce the view that the Bank of England will start inching interest rates up during the first half of 2016.”
The view that interest rates should rise in mid-2016, was stated by the Bank of England in its latest inflation report. Delivering the May inflation report, Governor Mark Carney laid out a path for rates that saw a first rise in line with the February report’s forecast but then a slightly faster increase beyond that.
The Bank sees inflation returning to 2 per cent in 2016 and settling at about that level. Speaking the day after the inflation report, Mr Carney told BBC Radio 4’s Today programme that rates needed to stay low to deal with the headwinds the economy faced. Those include low productivity, fiscal tightening from government austerity and the uncertainty of the in-out EU referendum the Conservative party has promised. The Bank also slightly lowered its GDP growth forecasts.
Howard Archer, chief economist at IHS Global Insight, said: ‘It is likely that there was a 9-0 vote within the Monetary Policy Committee for keeping interest rates at 0.50% at their April meeting, although Martin Weale and Ian McCafferty were likely again very twitchy about keeping interest rates down at 0.50%.
“We expect the minutes to reinforce the view that the next move in interest rates is odds-on to be upwards and to suggest that a hike is most likely to happen early in 2016.
The Bank of England kept interest rates at 0.50% at its May policy meeting. The decision was taken at the end of the monetary policy committee’s on Thursday, but was not made public until noon Monday as the Bank did not want to risk influencing the general election.
