PwC senior economist Barret Kupelian comments on today’s MPC decision
“As expected, the MPC voted to keep interest rates on hold at 0.75%. In line with the previous meeting, two members of the committee dissented from this view, voting for an immediate rate cut to 0.5%.
The tone of the minutes suggests that the MPC is in “wait and see” mode. The MPC notes some loosening in the UK labour market, highlighting the decrease in the number of vacancies, but expects the unemployment rate to remain flat in the near future. It also notes that despite modest softening in the earnings growth rate, it continues to grow faster than the productivity growth rate leading to an increase in unit labour costs.
However, the future relationship of the UK with the European Union continues to be the elephant in the room. The minutes suggest that the MPC’s reaction will depend on the nature of the future relationship struck between the UK and the EU and the speed at which the transition takes place. If, for example, there is an orderly transition to a free trade agreement between the EU and the UK, the MPC expects inflationary pressure to pick up, which could lead to future gradual rate rises.
On the global economy the MPC notes that there are some tentative signs of stabilisation but that trade tensions continue to remain elevated. If this proves to be a false dawn then the minutes suggest that the MPC stands ready to support a rate cut, particularly in the short-term.”
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