BoE to pause before raising interest rates - RBS

According to analysts at RBS, a sharp slowdown in UK’s economic activity adds to calls for the bank of England to pause before raising interest rates.

Key Quotes

“Wipeout. The UK eked out growth of a paltry 0.1% between Q4 and 2017 and Q1, the slowest pace in over five years and well short of the 0.3% expected. Sobering stuff. But digging underneath reveals things weren’t quite that bad. Growth in the all-important services sector was estimated to be 0.3%q/q. However, the consumer facing industries are still feeling the pain from the squeeze on household incomes. And the retail sector’s woes were compounded by the bad weather. A whopping 3.3% fall in construction sector output was enough to wipe 0.2 percentage points off the headline growth figure. With inflation in retreat and spring here at last, Q2 holds out the prospect of a better picture. Let’s hope so.”

“Revaluation. If market pricing is to be believed, the weak Q1 growth figure has substantially reduced the prospects of a rate hike next month. The probability of a move upward by the MPC stands at just 25%, having been around 50% the day before. A weaker-than-expected inflation reading for March and uninspiring wage growth figures had already dented prospects of a May move (the probability was a near nailed-on 80% two weeks ago). It wouldn’t be surprising if the Bank of England adopted a collective ‘wait and see’ approach, preferring to wait on evidence of a rebound before opting to hike.”