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Ben Brettel, Hargreaves Lansdown

No change at Bank of England as rate rise recedes into the distance

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Rhetoric at the Bank of England has undergone a subtle but noticeable shift in recent weeks, says Ben Brettell (pictured), senior economist at Hargreaves Lansdowne…

Chief economist Andrew Haldane admitted last month he was ‘gloomier’ than earlier in the year, citing weakness in the euro zone and a slump in UK living standards. Meanwhile Sir Jon Cunliffe, deputy governor for financial stability, said that low inflation and weak wage growth meant the Bank could afford to delay rate rises.
 
There is little sign of further MPC members crossing the fence to join Ian McCafferty and Martin Weale in calling for higher rates. Indeed I believe there is more chance that one or both hawks will admit defeat and begin voting once more to leave rates on hold. For the first seven months of 2011 Martin Weale voted for higher rates, but in August of that year a weakening economic outlook forced him to back down and vote for no change.
 
A combination of falling oil prices, an aggressive supermarket price war and virtually non-existent wage growth should ensure that inflation continues to fall in the coming months. Indeed it looks likely to drop below 1%, which would necessitate a letter from Mark Carney to the chancellor. YouGov’s monthly poll of the public’s expectation of inflation over the next 12 months remained at a five-year low of 1.9%, and the Bank of England is expected to revise its inflation forecasts downward in next week’s quarterly inflation report.
 
Given the outlook for inflation and wages, and the risks posed by the euro zone, I fully expect interest rates to remain on hold until the summer of 2015, and probably even longer. Indeed it would not be a surprise if they didn’t rise until 2016.

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