Why will the Bank of England hold rates?

The Bank of England will hold rates because it is playing a game of Follow my Leader. Given that rates went up, theoretically this should mean the BoE increases the base rate. But the rhetoric behind the hike was actually rather dovish, and that will be the lead that the Monetary Policy Committee will take.

Yesterday I pointed out that monetary policy has become global in its scope and impact. While the global economy is not the remit of the Fed, the fact that it kept with the median projection of three rate rises this year means that it acknowledges the need to bring return to normal gradually rather than immediately. Yellen’s phrase, “We still have plenty of time to see what happens,” could equally be interpreted as a nod to the fact that US fiscal policy will become looser and it may be necessary to increase rates more sharply next year.

So the Bank of England has every excuse to keep rates on hold. Consumer borrowing continues to grow and wage growth has fallen back. As a result the argument that rate increases will be damaging to households is likely to win over. Whether or not this is the right decision is moot — savers are suffering at the moment and an equally compelling case can be made that rates should rise. But the fact remains: there is an excuse for not hiking rates, so the Bank won’t.