The disappointing UK economic data and Brexit-related political uncertainty are legitimate reason for the BoE’s dovishness, Oladimeji argued.
And although inflation has picked up in recent months, most of that can be explained by the “steep decline in sterling”.
“Beyond that currency effect, there is little evidence of wage pressures in the labour market or other signs of an overheating economy that might suggest a sustained build-up of inflationary pressure,” he said.
That’s why it’s best to just “let the hawks squawk”.
“Some have suggested that a solitary hike to reverse last August’s cut would mark a step back towards normality. While such a hike will not in itself significantly undermine the economic outlook, the risk is that it could be misinterpreted by investors and markets could drive much further tightening in financial conditions.”
Also, while “a rate rise would serve to contain the growing consumer credit bubble,” and boost the pound, thus curbing rising inflation, “it would also heap more pressure on UK households by raising mortgage repayment costs, at a time when wage growth is weak,” Khalaf noted.
Not to mention, it would increase the cost of unsecured borrowing, which would be another hardship on consumers.
He concluded: “Markets are pricing in a 40% chance of a rate rise by the end of the year. We should bear in mind that even if it materialises, a rate hike would only take us back to where we were at the beginning of last August, before the EU referendum result prompted the Bank of England to cut base rate to 0.25%.”
In her final speech as an MPC member, Forbes described central banks’ inability to move interest rates from the emergency levels adopted in response to the global financial crisis as a “failure to launch”.
“This ‘failure to launch’ has been particularly meaningful on a personal level,” said Forbes, who said she expected interest rates to begin increasing shortly after she joined the MPC in July 2014.
“It has been almost three years – and growth has averaged a healthy and above trend 2.3% (year-on-year) over this period.
“Yet interest rates are now lower – instead of higher – than when I started my term. And that doesn’t even include the additional monetary easing in the form of £70bn of government and corporate bond purchases announced in August.”
Though Forbes deems the UK “ready for lift-off,” analysts, investors and even her former members of the MPC don’t seem nearly so certain.
