David Prosser: No end in sight for ultra-low interest rates
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Your support makes all the difference.Outlook It looks as if Andrew Sentance, the economist for who this week's Monetary Policy Committee meeting is the last, will see his term come to an end without securing the interest rate rise for which he has been pressing since last June.
Assuming Mr Sentance is consistent tomorrow, this month will be the fourth time running he has pushed for a base rate rise of 0.5 percentage points, following eight consecutive votes for an increase of 0.25 percentage points. And it is a fair assumption though theeconomic data published since the MPC's last get-together in April has been gloomy – including yesterday's updates on the manufacturing and retail sectors, as well as those dismal GDP figures – Mr Sentance's commitment to the rate rise cause is too entrenched to be undermined by the daily ups and downs of the data cycle.
Still, the endless stream ofdisappointing statistics will make it much harder for him to persuade anyone else to back a rate rise. And another disappointment may be just around the corner for the MPC. The Bank of England, in its February Inflation Report, thought that the UK economy would grow by 2.2 per cent this year, a forecast that now looks over-optimistic. When the Bank presents its second Inflation Report of the year next week, it is likely to be forced to downgrade its assessment.
If you believe the markets, which as recently as March were predicting May would be the month when rates finally began to rise, the day of reckoning has been delayed until November.
However, with the Bank likely to follow everyone else in cutting forecasts for this year – and maybe 2012 too – many economists now believes the era of ultra-low rates may be here for much longer than expected, particularly if inflation does fall sharply next year as the MPC expects. Indeed, the think tank Capital Economics says there is now a good chance that rates will not fall until 2013.
Mr Sentance's departure from the MPC makes that more likely. We don't yet know how his replacement Ben Broadbent will vote, but there is nothing on the former Goldman Sachs economist's CV to suggest he will be as hawkish as the man he is replacing...
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