After the sea of downbeat economic news in recent weeks, the Monetary Policy Committee (MPC)’s decision to keep rates unchanged at its meeting in May came as little surprise. Of course, the MPC’s decision to hold fire largely reflected a desire to confirm that the weakness in growth in Q1 is temporary. And the picture could easily – and probably will – alter again by the time of August’s Inflation Report.
Indeed, if we are right in thinking that the recent larger-than-expected fall-back in inflation and subsequent recovery in real wages will help growth to outperform the MPC’s expectations, then the Committee should be finally in a position to begin normalising policy. As such, we are sticking with our view that the MPC will hike again in August and November, and by a further two times before the end of 2019, taking Bank Rate to 1.50% by the end of that year.
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