The Monetary Policy Committee (MPC) meets this Thursday following a June split when three committee members voted for a rise.
Analysts at Berenberg today predicted that, as long as growth rebounds to around 0.4% quarter on quarter in the second half of this year, a first hike of 25 bps will not take place until November 2017.
It said the committee is divided between those concerned that the BoE will overshoot its 2% inflation target unless it tightens now, and those that need more evidence of economic resilience before tightening.
“The BoE has not been so hawkish since 2011 when three MPC members voted for a hike – it never came. As one of those that voted for a hike has left the MPC, the number of dissents will probably drop to two this month,” said Berenberg senior UK economist Kallum Pickering.
“The softer-than-expected growth since the start of the year and the recent drop in core inflation from 2.6% to 2.4% in June will probably keep other committee members from voting for a hike this month.”
Pickering said indications are that the committee is moving towards withdrawing part of the stimulus it injected last August. However, this depends on continued resilience of household spending and a continued recovery in nominal wage growth.
Given the Brexit uncertainty, Berenberg predicts continued tightening after an initial Autumn hike would be very gradual. “We would look for two more hikes in 2018 and one further hike in 2019.”
L&C Mortgages associate director David Hollingworth said the jury is out on the likelihood of a rise in the near future.
He said: “The spilt decision last month put the prospect of a rise back on the table sooner than previously anticipated but since then a surprise reduction in inflation figures may back up the decision to hold off.”
Hollingworth suggested any change from the existing hold policy would provoke a reaction from consumers who have not acted on the low rate environment. “The very best rates are available now but will probably have gone by the time the base rate rises – assuming the market sees it coming and reacts,” he said.
Rachel Springall, finance expert at moneyfacts.co.uk, said the historically low base rate has been a doubled-edged sword for consumers, helping mortgage borrowers with low rates, but hitting the savings market.
“While these low rates on mortgages are tempting, not everyone will find that they are eligible to change their deal, especially if they are just about managing. Regardless of whether they can demonstrate that their monthly repayments would fall, if they are unable to prove that they could afford a future rise to their interest rate, then they could end up as another mortgage prisoner,” she said.
“It still remains that, due to government lending initiatives, several providers have no desire for savers’ deposits to fund their mortgage books – which is why there is a large discrepancy between the rates on offer from these institutions compared with challenger banks. Challengers have almost singlehandedly propped up the savings Best Buys with their deals, because it can be essential for their future to attract savers’ cash and build trust for the brand.”