The UK’s base rate remained at 0.5% despite increasingly positive news on the British economy, including the International Monetary Fund raising its forecast for UK economic growth this year to 3.2%.
“Whilst a rate rise this month was not generally expected, the August meeting had been heralded by many in the market as the meeting where the committee might be seen shifting notably towards tighter policy,” said Investec economist Victoria Clarke.
“With this being an inflation report meeting, meaning MPC members would be reassessing forecasts, it was an important one in defining the likely timing of the first rate hike, we suspect,” she added.
Clarke also noted that we will know more on 13 August as the inflation report in question will be published and Mark Carney is due to speak to the media.
“While everything on the surface appears to be the same, the rumours are that some members of the MPC may now be in favour of making a rate rise,” Chris Williams, CEO of Wealth Horizon said. “More will be known when the minutes of the meeting are released later this month but if speculation is true, then this would suggest that the MPC are starting to thaw and that the long freeze on rates is almost at an end," he added.
The ECB also failed to surprise by keeping the record low rate of 0.15% in place. Many are unconvinced however that the ECB is going far enough in its efforts to drive the Eurozone economy to meaningful growth.
“This is a failure to take further bold steps and a form of European style QE is keenly needed,” said Nancy Curtin, CIO of Close Brothers Asset Management. “Europe needs a liquidity solution to aid growth, curb the strong Euro and stimulate much needed credit,” she added.
With France’s economy slowing, ‘dangerously low’ inflation means deflation is a still real prospect and stagnant economic growth has acted as a drag on corporate earnings, Curtin further noted.
“Stronger stimuli is needed from Draghi to lay the building blocks for long-term recovery across the Eurozone, and to date the steps are still too small- the longer the delay, the more entrenched the structural slowdown becomes,” she added.
