LONDON (Reuters) – The British central bank should keep interest rates stable on Thursday after a political Halloween meeting, which according to economists would have left long-term plans to increase the costs of "suspended animation" loans.
PHOTO FILE: Flowers in bloom are in front of the Bank of England, in London, Great Britain, August 1, 2018. REUTERS / Peter Nicholls / File Photo
Rather than zombie companies or supernatural forces, it is the most familiar scarecrow of an economically damaging no-deal Brexit that is almost certain to keep the Bank of England waiting after its last three-month interest rate hike does.
"Until an agreement is made – or not – we suspect that the BoE is in suspended animation", the American Bank economist Merrill Lynch Robert Wood wrote in a note to customers.
A year ago, the BoE raised interest rates for the first time since the global financial crisis and followed up with a further increase in funding costs at 0.75% in August.
Economists interviewed by Reuters expect that the nine members of the BoE's Monetary Policy Committee voted unanimously to keep the rates pending this month, and on average do not see a further increase in rates until May.
Britain should leave the European Union on March 29 next year, but Prime Minister Theresa May has not yet reached a transitional agreement that will guarantee the next day the free movement of goods between Britain and France. EU.
The drop in sterling against the dollar and the euro after the Brexit vote in June 2016 pushed inflation to a peak close to six years of 3.1% last year.
The effects of this are now faded, and inflation has fallen to 2.4 percent in September. But some BoE politicians are worried that a recovery in wage growth will delay the return of inflation to its 2% target.
By eliminating volatile bonuses, annual wage growth in the three months prior to August rose to 3.1%, the largest increase since January 2009, prompting Andy Haldane, chief economist at BoE, to speak of a "new dawn" for the salary growth.
Other officials, such as Deputy Governor Jon Cunliffe, are more skeptical, and recent consumer figures have shown slower spending after a summer madness led by an unusually warm climate.
On Thursday, the BoE will update its growth and inflation forecasts. Some economists expect inflation forecasts to be closer to 2 percent compared to August, as a stronger currency and higher global interest rates offset the inflation potential of higher wages.
Growth for this year was forecast at a weak point of 1.4 percent in August, due to the heavy snowfall that hit the economy at the start of the year and the BoE should maintain the forecasts of recovery in 2019, assuming that Brexit proceeds smoothly.
BoE Governor Mark Carney said in August that market expectations of around 25 basis points per year were a good rule of thumb for families, and economists see no change from this general approach on Thursday.
"As we approach the end talks (Brexit transition), we do not expect the BoE to change its guidelines," said Bank of America & # 39; s Wood.
Reporting by David Milliken; Editing by Hugh Lawson