Neil Williams, Senior Economic Adviser, Hermes Investment Management:
“After softer activity data, the BoE's rate-hike today, their second in this cycle, may raise some eyebrows. However, it shouldn't be seen as heralding a swift move upwards.
“As with their first rise last November, the Bank's tone again reflects caution. Suspecting that its room to manoeuvre will become more constrained as Prime Minister May seeks a Brexit Treaty in 2019, it may be putting as much store on tactics as long-term strategy. Even if there is a deal next year, it would most likely only be a precursor to sorting out the various legal and trade systems by December 2020.
“Motivating today's move will be the MPC’s assessment of very little slack left in the economy, and building excess demand. It will also be hoping that spring’s pay settlements data have been strong enough to help validate the traditional link with low unemployment.
“Yet, their window to hike may become smaller in 2019, and even close by 2020. UK growth has almost ground to a halt - from the top of the G5 quarter-on-quarter growth-table in H2 2016 (just after the referendum) to the bottom by H2 2017 - despite a softer fiscal stance.”