A May rate rise had been described as a done deal following the MPC’s last meeting in March. However, in the intervening period, Q1 GDP growth came in below consensus at 0.1% and inflation fell sharply in March to 2.5%, also below expectations.
Hargreaves Lansdown said in a statement following today’s announcement that the “unreliable boyfriend” has returned. The moniker had previously been used to describe Carney’s mixed signals to the market about the future path for monetary policy.
Senior economist Ben Brettell said: “Not for the first time, Mark Carney’s policy of guiding the markets as to what to expect has backfired.
“A month or so ago it looked like a May rate rise was a near-certainty. The Bank of England had upgraded its growth forecasts and in March two members of the MPC broke ranks and voted for an immediate rate rise. Markets were then pricing in a 90% chance of a rate rise at this month’s policy meeting.”
In April, Carney sent sterling downwards when he suggested the Bank of England would not rush into a rates hike due to mixed economic messages.
Brettell said the announcement has had little effect on markets, which this week were pricing in just an 8% chance of a hike.
“Personally I think we might not see a rate rise for the rest of the year,” Brettell said.
Hermes Investment Management senior economist Silvia Dall’Angelo echoed that view. “The opportunity window for further rate hikes may have closed for the Bank of England,” Dall’Angelo said.
This is due to Brexit, protectionist risks abroad, and recent purchasing manager surveys pointing to sluggish domestic economic activity.
However, Brown Shipley deputy CIO Alex Brandreth said November would be a suitable month for the next hike to now take place.
“We’ll have found out the decision on the UK’s divorce settlement from the European Union by October and the Bank can make any decisions with this in mind,” Brandreth said.
