Austerity and low inflation likely to keep MPC inactive

Since the first estimate of Q1 GDP has cast some doubt over the recovery’s health, the MPC is likely to have voted unanimously again at this month’s meeting to keep interest rates on hold. And while we think that the recovery is secure, the tough fiscal squeeze that is now all but certain to hit the economy and the subdued outlook for inflation should ensure that monetary policy is tightened only gradually from next year.