By David Milliken
The Bank of England will be looking to see if Britain’s economy has recovered from a severe winter chill as it weighs the prospects for a future interest rate rise this week.
No economists polled by Reuters expect the Bank of England to raise rates tomorrow, and some are getting cold feet about their forecasts for a rate rise in August, which would be only the UK central bank’s second increase since the 2008 financial crisis.
Patchy growth as the economy prepares to leave the EU in March next year places Bank of England policy in sharp contrast to the US, where the Federal Reserve plans to raise rates four times in 2018, and three times in 2019.
“The Monetary Policy Committee will be wary of providing any firm guidance over the likely timing of the next hike as it won’t want to tie its hands,” BNP Paribas economist Luigi Speranza said.
Goldman Sachs currency strategists said sterling —which is already near a 2018 low — continued to price in too high a chance of an August move.
Bank of England governor Mark Carney has said first-quarter weakness looks temporary and expects rates to rise gradually over the next couple of years, to prevent overheating at a time of above-target inflation and the lowest unemployment since 1975.
But he has been much vaguer about precise timing. A putative May rate rise was thrown off course by an unusually harsh winter — and a possible underlying slowdown — that led to the British economy almost stagnating from January to March.
A record proportion of the public in a Bank of England survey last month had no idea what would happen to rates over the coming year —perhaps reflecting Brexit uncertainty as well as central bank indecision.
Trade concerns exist outside Britain too. The Bundesbank sharply cut its growth forecast for Germany on Friday, partly due to worries that President Trump may spark a trade war with his tariffs on European and Japanese steel.