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Hermes responds to the Bank of England’s decision to leave rates unchanged

Silvia Dall’Angelo, Senior Economist:

“The Bank of England has adopted a wait-and-see mode in the face of recent negative data on growth and inflation.

“At its previous monetary policy meetings in February and March, the Bank sounded quite hawkish, hinting at a follow through to the November hike to take place as early as in May. However, recent disappointing economic data progressively reduced the chances of a move today, and GDP statistics last week (showing that economic activity almost stalled in Q1) were probably the nail in the coffin of an imminent rate hike.

“The opportunity window for further rate hikes may have closed for the Bank of England, as it is now dealing with at least three challenges. Domestically, April surveys on economic activity (the services PMI, notably) pointed to a sluggish rebound from the weather-related weakness in March, suggesting that a more fundamental slowdown might be in place, particularly affecting the consumer. External developments might also play havoc with the outlook as protectionist risks are still brewing in the background. Most importantly, Brexit is still the main source of uncertainty for the economic outlook and related risks have not receded. The Irish border issue has not been solved yet, jeopardising the chances of reaching a withdrawal agreement in October. Moreover, as the discussion on the opportunity of a customs union with the EU is dividing the UK Cabinet, there is still no clarity on the terms of the arrangement that will eventually regulate the relationship with the EU.”

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