STOP PRESS – BoE holds rates at 5.5% - but not for long!

There was a 30% chance of the MPC raising UK interest rates at noon today. The decision to leave them on hold is likely to be just a temporary reprieve.  

The Committee came pretty close to hiking again today, but recent tentative indications of some slowdown in the housing market may have tipped the balance towards no change. However, outside the housing market, there are still few signs that the previous hikes in this cycle are yet having any meaningful effect on activity or sentiment - consumer confidence has actually been rising, while business sentiment is also still solid. Meanwhile, the Committee remains clearly concerned about the medium-term inflation outlook, given the signs of increased pricing power amongst retailers and producers and the continued strength of the money supply and asset prices. And although consumer price inflation is still likely to fall over the coming months, it may do so less quickly than had previously seemed likely after the renewed rise in oil prices.  

Bottom line: Expect interest rates to rise, probably twice more in this cycle to 6%, with the next move possibly coming as soon as next month.

Prometheus from sources: ADM, Barclays Capital, Cazenove, Charles Stanley, HSBC, ING, SocGen, UBS.