Bank of England policymakers should resist hiking interest rates for at least another year to avoid weakening the “fragile” economic outlook, an influential think-tank will argue this week.
The EY Item Club is poised to release its autumn forecast that will predict GDP growth of just 1.5 per cent in 2017 and 1.4 per cent in 2018.
Despite expectations that the central bank’s nine-strong monetary policy committee (MPC) will vote for a rate rise as early as next month’s meeting, Item Club economists will urge members to wait until the UK’s economic prospects look brighter and there is greater certainty over the Brexit transition arrangements. They will call for the bank to delay a rate hike until late 2018.
Howard Archer, chief economic adviser to the Item Club, is set to say: “We are far from convinced that raising interest rates this year is the recommended course of action. We believe that it is still likely that inflation will fall back markedly through 2018 as the impact of sterling’s past drop fades and domestic price pressures are limited by lacklustre growth, with only a gradual pick-up in earnings.
“While it is understandable that the MPC will want to gradually normalise interest rates from their current ‘emergency levels’, we believe it would be better to do so once the economy is on a stronger footing.”
Meanwhile, inflation is expected to have hit a five-year high when official figures are released this week. The consumer price index measure of inflation is forecast to come in at 3 per cent for September, marking its highest level since April 2012.