Interest rate rise 'unlikely' in May

8 May 2018
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An interest rate rise is almost certainly off the cards in May, with markets pricing in a 92% chance that rates will be held this month. 

Whereas only one month ago markets were pricing in a 98% chance of the Bank of England hiking interest rates in May, that figure has now fallen to just 8%.

“Back in early April, a rate rise at the May meeting was so widely predicted that it seemed nailed on. However, over the past few weeks, the picture has changed dramatically,” said Sarah Coles, personal finance analyst, Hargreaves Lansdown.

However, since then, a number of economic data releases have dampened the prospects of a rate hike. The vote on where to set the base rate takes place on Thursday 10 May. 

At the end of April, the Office for National Statistics reported that the UK’s economy barely grew in the first quarter of 2018.

GDP growth was recorded as being just 0.1% for the first three months of 2018, the lowest rate of growth since 2012, and well below forecasts. 

Such a low rate of growth made the prospects of a rate rise “now close to zero”, said Pantheon Macroeconomics at the time. 

Further reducing the prospects of a rise was inflation and wage data. The Consumer Prices Index in March fell to 2.3%, down from 2.7% in February. This fall in inflation was larger than predicted, further strengthening the case against the Bank of England upping rates in May. 

While keeping rates low may be the best option for the economy as whole, savers hoping for better returns on their deposits are likely to remain disappointed.

“Of course, a rate rise remains a possibility, but this is yet another ample demonstration of the futility of trying to guess the date of the next interest rate rise, and how dangerous it is to base your savings strategy on unreliable predictions,” noted Ms Cole.

“Anyone who has left their savings sitting in an easy access account with a dismal rate – waiting to move their money after a rate rise – is highly likely to end up paying the price for their optimism.”

This article first appeared on our sister website Money Observer

 

Comments

In reply to by anonymous_stub (not verified)

Quote from Ms Coles“Anyone who has left their savings sitting in an easy access account with a dismal rate – waiting to move their money after a rate rise – is highly likely to end up paying the price for their optimism.”We were only expecting a 0.25% rise anyway and anyone with money in an easy access account (such as me) is because they will be spending it soon - in my case it will be a house move.

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