City analysts divided over Bank of England 'Super Thursday' interest rates messaging

For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails

Sign up to our free breaking news emails

Please enter a valid email address

Please enter a valid email address

SIGN UP

I would like to be emailed about offers, events and updates from The Independent. Read our privacy notice

City of London analysts are divided over what message the Bank of England will likely send to financial markets on Thursday about the future path of interest rates in the face of rising inflation, but also signs that the economy is slowing down in the face of a flagging British consumer.

The Bank’s Monetary Policy Committee will reveal its latest decision on interest rates, while also publishing its new economic forecasts and staging a press conference with the Governor, Mark Carney, in a quarterly event dubbed “Super Thursday”.

City of London analysts expect no change to rates, which are currently at 0.25 per cent, having been cut in the wake of last summer's Brexit vote.

“We expect the Bank of England to give the overall impression that it is in ‘wait and see’ mode… with most members still in no hurry to move interest rates,” said Howard Archer of IHS Global Insight.

“Markedly slower than expected UK GDP growth in the first quarter, the snap general election on 8 June, muted earnings growth and early difficult posturing ahead of the start of the Brexit negotiations between the UK and the EU make a pretty compelling argument for the Bank of England to sit tight on Thursday.”

In its last meeting in March the MPC voted by eight to one to keep interest rates on hold, with the external member, Kristin Forbes, voting to increase rates by 25 basis points to 0.5 per cent.

However, Kallum Pickering of Berenberg said the Bank might begin to “prepare the ground work” for the first rate hike through the tone of its minutes and the Governor’s statement.

“The UK economy is in its eighth year of expansion, unemployment is at its lowest since 2005, employment is at a record high, domestic demand growth remains resilient while the global backdrop is improving, households are gearing up and underlying inflationary pressures are building. Even with a modestly higher bank rate, UK monetary policy would remain easy,” he said.

Economists at Bank of America said that they saw little reason for a hawkish message from the Bank, given the consumer slowdown, but they did see the possibility of another external MPC member, Michael Saunders, voting for a rate hike.

“The BoE may also emphasise that rate hikes are more likely than not over the next three years,” they said.

John Wraith, a strategist at UBS, concurred that “more dissent” on rates in the MPC was possible.

“We expect a more hawkish tone, given inflation above target, a tight labour market and some robust data,” said economists at Morgan Stanley.

“The shift to the hawks opens up the possibility of an opportunistic hike in [the second half of 2017]”.

Last month Mr Saunders gave a speech in which he said that “growth seems more likely to exceed the external consensus than to undershoot”.

But the Office for National Statistics, since then, has reported that GDP growth slowed in the first quarter of 2017 to 0.3 per cent, down from 0.7 per cent in the final quarter of 2016, mainly due to a sharp slowdown in consumer spending.

In February the MPC raised its 2017 GDP growth forecast to 2 per cent. Analysts think that could be shaved on Thursday to 1.8 per cent.

Annual consumer price inflation in March was steady at 2.3 per cent, but was projected by the Bank in its February round of forecasts to peak at 2.7 per cent later this year as the plunge in sterling since last year’s referendum is passed through to prices.