Will UK Rates Rise in May as Predicted?

The Office of National Statistics has reported that the UK economy only grew very slightly in the first 3 months of 2018.

In the last quarter of 2017, the economy grew at 0.4%, making the first quarter of 2018 look particularly anaemic at 0.1%. This was the lowest growth since 2012.

The Bank of England predicted growth of 0.3% in the same period, with Lloyd's and BCC predicting 0.4%, which emphasises the disparity between expectation and reality.

The "Beast from the East" weather system that battered the UK this year combined with a 3.3% fall in the construction sector contributed to the fall in GDP growth with the construction sector the more important of these.

The weak growth in the economy makes it unlikely that the Bank of England will raise rates when taking history as a guide.

The latest GDP data has prompted Pantheon Macroeconomics to remark that: "the chance of a May rate hike is now close to zero".

The Bank of England will most likely hold off from raising rates, despite the fact that GDP growth is expected to recover to the 0.3-0.4% mark and household incomes are recovering, in addition to the brexit transition deal having been agreed upon.

Pantheon say:

"With inflation falling much more rapidly back to its target than the MPC expected and wage growth still not building momentum, the MPC has the luxury of being able to delay raising interest rates in May to be sure that the Q1 slowdown was largely a weather-related blip."

The Bank of England will only raise rates once this year, in August, according to Pantheon.

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