Fiscal uncertainty to keep MPC on hold

May’s Monetary Policy Committee (MPC) meeting comes just before the publication of the next Inflation Report, making a change of policy slightly more likely than in the past couple of months. However, we think that the Committee is likely to stand pat once again, not least because of the considerable uncertainty about the course of fiscal policy after this week’s general election. But we think that a major fiscal squeeze looms whoever wins and that a further offsetting loosening of monetary policy will be required.