Thursday: Another non-D Day at the Bank of England?
Tomorrow’s Monetary Policy Committee (MPC) at the Bank of England is likely to decide to keep interest rates where they are: 0.5%, the level they have been at for most of the decade since the banking crisis.
The MPC will probably also decide to maintain the existing level of Quantitative Easing- the process of injecting cash into the economy in the early 2010s when the Bank purchased £445bn of financial assets.
A MPC decision to maintain the status quo would be unsurprising. The first estimate for UK GDP growth in the first quarter of this year was only 0.1% (admittedly, some of that deceleration could be a weather-related blip). Measures of business confidence are looking less healthy. Here in Northern Ireland the available indicators suggest that whilst growth continued in 2017 it has been slowing down and the region is lagging behind the UK average.
That all said, maintaining interest rates at these very low levels for so long may be storing up problems for the future: when the next recession comes the Bank may be left with little firepower in the locker of monetary policy. Also, if the process of starting a rise in interest rates is repeatedly delayed this probably means that when the process does start it will be harder to ensure it happens in a series of small, carefully managed steps.
We are now ten years on from the last recession. The likelihood of another downturn is increasing. If the Bank does not begin to increase interest rates now the threat is that the Bank/MPC will have limited scope to cut interest rates to deal with a recession because the rates will be so close to zero.