Last month offered a number of conflicting answers:
- The Bank of England’s Quarterly Inflation Report This was generally seen as suggesting that the first rate rise would be in the early part of next year. The Bank halved its forecast for earnings growth to 1.25%, which hardly suggests wage-driven inflation is around the corner. On the same day the Office for National Statistics said earnings (including bonuses) had fallen by 0.2% year on year.
- Mark Carney’s Sunday Times interview At the end of the week the Inflation Report was issued, the Sunday Times published an interview with the Bank of England’s Governor, Mark Carney. This produced the headline “Carney: rate hike before pay recovers,” which looked slightly at odds with the tone of the Inflation Report.
- July inflation numbers These came out two days after Mr Carney’s weekend press comments and once again tilted expectations towards a rise in the first quarter of 2015. Consumer Price Index (CPI) annual inflation fell to 1.6%, 0.3% below June’s figure and 0.2% less than consensus forecasts. The previous month had seen an unexpected increase, which July’s dip suggested was a blip, possibly due to the timing of summer sales.Monetary Policy Committee Minutes A day after the good news on inflation, the release of minutes from the Bank of England’s August meeting of the Monetary Policy Committee (MPC) showed two of the nine members voting for an immediate rate increase. It was the first time in over three years that there had not been complete agreement on holding a 0.5% base rate.
The will-they-won’t-they show returns in November, with the next Inflation Report. In the meantime, it would appear that the foreign exchange markets have decided UK interest rates will stay on hold until the New Year: in August the pound fell further against the dollar, leaving it about six cents down from its start of July peak for 2014.
It’s still too tight to call, but savers may be able to see some light on the interest rate horizon soon.