Why the Bank of England’s on Holiday, in Five Charts

It’s more than a decade since the Bank of England last sprang a surprise rate increase on the market, with a hike in January 2007 that wasn’t anticipated by any of the 22 economists surveyed by Bloomberg News. Here are five charts showing why the central bank should stick with the current consensus and stay on hold when it meets tomorrow.

The U.K.’s growth rate has slowed, and is now below that of the euro zone. Moreover, that disparity will hold for the rest of the year, according to the consensus forecast of economists surveyed by Bloomberg News.

As a result, traders have scaled back expectations for when the Bank of England is likely to raise interest rates.

Bank of England Governor Mark Carney has often cited the surprising lack of wage growth as the main reason for keeping rates at their current record low of 0.25 percent.

The sharpest rising component to inflation has been imported food prices, literally right at the start of the food chain. This is now starting to roll over and should feed through quickly to lower prices for consumers.

When the bank in previous years did pull the trigger, quarterly economic growth was 0.8 percent on average, and was never below 0.5 percent, according to Bloomberg Intelligence economists Dan Hanson and Jamie Murray. The latest reading was 0.3 percent.

While Carney and the MPC will likely take the risk of letting the economy run too hot during this delicate Brexit transition period, the bank’s capacity to surprise shouldn’t be underestimated. 

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That January 2007 shocker — a 5-4 decision — came after an August 2006 increase that caught 38 out of 46 economists surveyed by Bloomberg by surprise. Then, as now, inflation was outpacing the bank’s 2 percent target, averaging 2.6 percent between the two meetings. Wages, however, were booming by 4.3 percent or better — and there was no Brexit clouding the horizon. 

A surprise this week would be most unwelcome.

(Corrects scale in chart entitled Stronger Economy)

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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