MPC keeps rates on hold

MPC keeps rates on hold Article

The bank of England Monetary Policy Committee (MPC) has chosen to keep interest rates on hold with a vote of 6-3, fueling speculation that a rate rise is likely for August.

Given the UK`s current inflation figure is 2.3%, which is above the target set the BOE and unemployment continues to drop there is obvious pressure on the MPC to increase rates.

Although there are strong economic indicators that suggest a rate rise is necessary, there are further contradictory indicators that suggest the UK`s economy is still relatively fragile, such as:

Wage growth is still lagging behind inflation, so although the costs of goods/services are going up it is not due to wage inflation. This is somewhat of a new phenomenon as historically the biggest driver of overall inflation has been wage inflation.
UK consumer confidence is still weak with consumers downbeat about general economic prospects
The UK retail sector is on its knees, the high street continues to lose major chains at an alarming pace. Whilst a large part of this is down to increased competition from online business, it is hard to ignore the fact both footfall and spending are down.
The worlds political climate seems very likely to take the wheels off international growth.

With all the contradictory economic statistics it seems conventional economic theory may be moribund. It would seem full employment does not necessarily lead to wage growth and GDP growth does not necessarily lead to an increase for peoples incomes or improved general consumer confidence. Perhaps in a world of globalisation the control of inflation is no longer possible by sovereign nations and the MPC should be set new targets based on trade balances and general prosperity?

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