Holding the line until next year   – Mortgage Strategy

Disappointing data on the UK economy is not expected to shift Bank of England rate-setters from holding interest at 4.75% on Thursday, say economists.
The economy shrank for the second month in a row in October, by 0.1%, according to the Office for National Statistics today, as concerns about Budget, which set out £70bn of spending plans over the next five years, continue to weigh on confidence.
Money markets are betting there is just an 8% chance of a rate cut at the final meeting of the Monetary Policy Committee on 19 December.
This comes despite the European Central Bank lowering its deposit rate to 3% from 3.25% yesterday, its fourth cut of the year, and an expectation that the US Federal Reserve will again cut rates next week from its 4.5%-4.75% range to bolster the American economy.
Last week, Bank of England governor Andrew Bailey said he expects four 0.25% “gradual” cuts next year, moving the base rate from its current 4.75% mark.
This year the UK central bank has made two 0.25% cuts, while inflation currently stands at 2.3%.
Quilter Investors investment strategist Lindsay James says: “It is looking increasingly likely that the Bank of England could stand alone in its decision at the December meeting to hold interest rates at their current level while the other central banks opt for cuts.
“The outlook for inflation in the UK remains uncertain, however with growth still weak whilst signs emerge that wage inflation will be meaningfully lower in the year ahead, the Bank may make a return to cuts in the new year.”
EY ITEM Club chief economic advisor Matt Swannell adds: “The message from the majority of the Monetary Policy Committee at its November meeting was loud and clear: it intends to reduce Bank Rate ‘gradually’. With incoming data so far giving them no reason to chart a new course.”
“While activity has been a little weaker than the Monetary Policy Committee anticipated, the EY ITEM Club doesn’t think it has been soft enough to sway a majority of members to vote for a consecutive cut in Bank rate.”
Deutsche Bank senior economist Sanjay Raja goes so far as to say Thursday’s meeting will be “a dull affair,” with members voting 9 to 0 for hold.
Raja adds: “With uncertainty surrounding the Budget impact, and in particular the impact of the hike in employer National Insurance contributions, the Monetary Policy Committee will likely hold the line in December, opting to wait for more data before deciding on its next move.”