Laith Khalaf, head of investment analysis at AJ Bell, comments on the forthcoming interest rate decision from the Bank of England:
“Markets are currently pricing in little chance of a rate cut at the next Bank of England meeting, though two more rate cuts are currently expected by the end of the year. However, there are substantial risks to this outlook. The latest inflation reading for January came in hot and the macroeconomic situation is volatile as Donald Trump’s trade policies threaten to unleash a global trade war, which could damage growth and push up inflation.
“The Spring Statement in the UK may also contain some tax and spending decisions which influence the interest rate committee one way or another. In April we will see the chancellor’s national insurance and minimum wage hikes come into effect which could also serve to increase prices for consumers, thereby making the Bank of England wary of cutting rates.
“We do seem to be back to the idea of transitory inflation, as the Bank expects inflation to pick up again towards 4% throughout this year before falling back. That may well prove to be the case, but the interest rate committee as a whole will be once bitten twice shy when it comes to watching inflation spiral out of control once again. Indeed, even if that is what the forecast says, the word ‘transitory’ is probably banned at the Bank.
“At the last vote two members wanted to cut rates to 4.25%, which shows some willingness to stimulate the economy in the face of rising inflation. While we may not get a change in interest rates at this forthcoming meeting, the commentary and voting record will still be instructive as to the mood currently enveloping Threadneedle Street.”
