Bank sees 2018Q1 as 'temporary soft patch', hinting interest rate rise 'likely' this year

Date: 21st May 2018

Bank sees 2018Q1 as 'temporary soft patch', hinting interest rate rise 'likely' this year
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Bank's latest economic analysis:
  • The Bank downgraded the GDP growth forecast for 2018 to 1.4% (1.8% in February), but left 2019 and 2020 unchanged (at 1.7%).
  • They noted that 2018Q1 was 'a temporary soft patch' and expected growth to be stronger in 2018Q2.
  • They downgraded their CPI forecasts. CPI inflation was projected to be 2.1% in 2019Q2, almost at target.
  • The Governor was reported as saying a rate increase is 'likely' this year.
  • Official data in the past fortnight have confirmed the 'soft patch' in 2018Q1, but the labour market remains remarkably robust.
Brexit developments in the past fortnight included:
  • The EU (Withdrawal) Bill passed through the Lords. The Government was defeated on 15 amendments in all. The Bill will return to the Commons for consideration of the amendments.
  • There were further Cabinet discussions on the Irish border issue. It was reported the Brexit Cabinet sub-committee had agreed to a version of a 'backstop solution' that would tie the UK to the EU's Customs Union after the transition period.

Oil prices have been higher than expected at the start of the year, reflecting tighter fundamentals and geopolitical tensions (including President Trump's withdrawal from the Iraq deal, threatening sanctions on Iran).

Ruth Lea said, 'There was undoubtedly a 'soft patch' in 2018Q1, but growth should pick up as 2018 progresses, not least of all because the squeeze on real earnings is easing. Given the tightening labour market and run-down of spare capacity, interest rates should rise this year. A rise of 0.5% in 2018 would be quite containable, but I expect the Bank to tighten by no more than 0.25% by end-year.'

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk
Follow Ruth on Twitter @RuthLeaEcon

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
arbuthnot@maitland.co.uk
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Arbuthnot Banking Group plc published this content on 21 May 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 21 May 2018 11:39:06 UTC