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Positive Outlook on an uncertain backdrop

18th December 2018

Interest Rate Prediction

Since everyone is already tired of the political debate over Brexit and the numerous variations of where the UK will finally land, we focus on the facts surrounding the MPC meeting due on 20th of December.

Let’s look at the positives:

• 2018 has seen pay levels recover some ground on the cost of living mainly due to employers having to compete for quality personnel.
• Unemployment at the lowest level for 40 years with job vacancies at record levels.
• The economy continues to grow quicker than anticipated.
• The Bank of England have confirmed that our financial system can cope with a disorderly Brexit

The above factors keep the Bank of England’s plans and predictions to raise the base rate in the Summer of 2019 intact, with a possibility of an increase being delayed into the fourth quarter.
The ability to cut rates in a disorderly Brexit and increase them if the pound comes under pressure allows the bank the wriggle room it requires.

The margin of 0.4% that represents the excess above the target inflation rate of 2% does not concern the bank and is in fact very much on track with predictions. Consumer spending remains the key factor since a positive Brexit will give people the confidence to spend, whereas a disorderly Brexit will create the opposite.

Since we will now wait until January for further developments with the EU, we predict that the nine MPC members will hold rates this time round.

Reference – BL048-Dec-18

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