Bank of England expected to keep its options open

The majority of economists in an FT survey think the Bank of England will keep its options open on the next move in interest rates over the coming year, while monitoring inflation and growth.

If they are right, the bank’s Monetary Policy Committee is set to reprise much of the period after 2013, when there was a lot of talk about monetary policy change, but no action.

Inflation is very likely to exceed the bank’s 2 per cent target, however, and the US Federal Reserve has raised interest rates twice in the past 13 months.

With unemployment low in the UK and inflation on the rise, 31 per cent of the economists surveyed thought the BoE would shift from its current stance of saying rates could move in either direction to indicating a rise was more likely by the end of the year.

Kitty Ussher, managing director of Tooley Street Research, said faster than expected growth would increase the chance of rate rises, “given we are near the top of the cycle combined with external inflation pressures”.

FT Economists’ survey 2017

Overview

Fiscal policy
Immigration
Inflation
Brexit
Performance
Trump

Frances Cairncross, chair of court at Heriot-Watt University, said rates were much more likely to rise than fall, “following rates in the US, and underpinned by an economy that will be stronger than most people currently expect”.

Ruth Lea, economic adviser to the Arbuthnot Banking Group agreed, although she said there was little chance of a rate rise in 2017 itself. “By the end of 2017, I expect the MPC to have dropped the notion of cutting interest rates further, which would be economically unjustified and would exacerbate financial distortions,” she said.

Dhaval Joshi, chief strategist at BCA Research, said: “The BoE will be caught between opposing forces: a potentially inflationary force from the recently higher prices for commodities and weaker pound; and a potentially deflationary force from Brexit uncertainties and if wages cannot keep up with consumer prices . . . on balance, the BoE is likely to do very little”.

As a one-time policymaker at the European Central Bank, Panicos Demetriades, professor of financial economics at the University of Leicester and former governor of the Central Bank of Cyprus, felt sympathy for the MPC. “There’s so much uncertainty that anything is possible over the next 12 months,” he said. “The MPC will have many tough choices ahead if the economy slows down and inflation keeps rising due to sterling’s depreciation.”

A minority of economists expect the bank to cut rates in 2017 even if the economy slows because it will view any rise in inflation as temporary.

Melanie Baker of Morgan Stanley predicts a cut from 0.25 to 0.1 per cent in May following a substantial slowing of the economy and despite rising inflation. “That would resemble 2010-14, when the MPC kept rates at the then lower bound and relaunched QE despite inflation as high as 5 per cent,” she said.

The majority view that the BoE is likely to do nothing does not stop many economists saying the MPC should act sooner. Peter Warburton, director of Economic Perspectives, said it was incapable “institutionally of approving a rate increase”.

Andrew Sentance, adviser to PwC and a former MPC member, said the BoE should be raising rates in 2017, adding “if the US Fed raises rates to 1.25 to 1.5 per cent by the end of the year as they are suggesting, it will be hard for the UK to sustain its rate at 0.25 per cent”.

Full responses

Anonymous

By the end of 2017, the MPC will have eased policy further by increasing the amount of gilts it will purchase. That will reflect the weaker growth outlook.

Anonymous

No. The MPC will sit on its policy rate, murmur warnings about second-round effects of higher headline inflation driven by the sharp (further) weakening of sterling, but otherwise “see through” the consequences of a sharp weakening of sterling. If the economy weakens enough, late in 2017, to warrant a fiscal stimulus, the MPC will probably stand ready to boosts its Gilt purchases should Gilt yields threaten to rise to uncomfortable levels.

Howard Archer, chief European and uk economist, IHS Global Insight

I suspect that interest rates will remain at 0.25% through 2017 and the MPC will maintain a neutral stance.

However, given major uncertainties over the UK economic outlook as Brexit gets under way and develops, nothing can be ruled out.

Clearly if the UK economy suffers a major downward lurch during the Brexit process, the Bank of England would likely react by trimming interest rates further, although we do not believe they would go lower than 0.10% given that the MPC has indicated that it considers the lower bound “to be close to, but a little above, zero.”

On the other side of the coin, the Bank of England has indicated that there is a limit to the inflation overshoot that it can tolerate (this will depend significantly on what is causing the inflation overshoot and how long it is likely to last). Mr. Carney has also indicated that the MPC will be closely watching inflation expectations over the coming months

Angus Armstrong, director of macroeconomics, National Institute of Economic and Social Research

Not change in policy on the basis of the economy weakening. but if the economy remains as robust as presently, then I would expect higher interest rates.

Melanie Baker and Jacob Nell, UK economists, Morgan Stanley

We expect the MPC to cut rates to 0.10% in May — a final cut to the new lower bound. Given the MPC’s neutral stance on the next move in monetary policy, this would require a substantial slowdown in growth — which is what we expect. We see the MPC cutting rates even with inflation above target, if growth is weaker than they forecast and unemployment above the full employment level. That would resemble 2010-14, when the MPC kept rates at the then lower bound and relaunched QE despite inflation as high as 5%. Sharply rising inflation expectations or pay, or substantial fiscal stimulus would keep them from cutting though. We think the MPC will be prepared to use QE again too, but expect this in 2H 2018 when we forecast another slowdown as the UK approaches the crunch point in Brexit negotiations.

Nicholas Barr, professor of public economics, London School of Economics

Unlikely to be much of a change, whichever its direction

Ray Barrell, emeritus professor, Brunel University, National Institute of Economic and Social Research

Interest rates are likely to rise in 2017 as inflation will rise noticeably. As we seem to be at around the sustainable level of unemployment, there is no case for the benign neglect we saw just after the financial crisis when inflation rose but unemployment was significantly higher than now. If rates do not rise there is a danger that the economy could be operating above capacity and inflationary pressures would rise. This may be particularly a problem in a period when underlying sustainable output is unlikely to be rising.

David Bell, professor of economics, University of Stirling

I do not expect so. Although inflation will rise in 2017, growth will be lacklustre. Therefore persistent, above-target, inflation is unlikely and the MPC will find it difficult to justify rate increases. On the down side, uncertainty about the effectiveness of monetary policy close to the zero lower bound will render decreases in rates unlikely.

Marian Bell, former member of the MPC

Yes, toward tightening (See growth and inflation comments above).

Andrew Benito, senior European economist, Goldman Sachs

We do not expect a change in Bank Rate in 2017, but we do expect the monetary policy stance to be eased through additional £50bn in asset purchases by the end of the year. This will see the BoE resist upward pressure on Gilt yields through Gilt purchases. In our view, a key way in which Quantitative Easing has worked, including through its reactivation in August, has been to facilitate a more backloaded fiscal consolidation. So, QE again allowed the UK Treasury to delay fiscal tightening as the new Chancellor announced in November’s Autumn Statement. On this view, the general upward pressure we have seen on market yields in recent months — which we expect to continue in 2017 — could have important consequences for UK monetary policy next year. The BoE faces a prospective trade-off between supporting activity (which is expected to slow) and containing inflation (which is expected to overshoot its 2% target). The more that the BoE acts to support demand and activity — as it did in August — the more it adds to the inflation overshoot, including by weakening the exchange rate. This is quite a different challenge to that faced by most advanced economy central banks which are trying to support growth and raise inflation to target. · In August, the BoE eased policy quite substantially, including by reactivating its QE programme and by offering cheap term funding to banks alongside a 25bp interest rate cut (see here). The BoE signalled it expected to lower the policy rate further, despite expecting inflation to overshoot its target by a historically large amount. Yet, by November, and following a further sharp weakening in the currency, the trade-off had deteriorated further and the BoE turned more cautious, a larger inflation overshoot was expected and the MPC dropped its easing bias. Its earlier guidance of a further cut in Bank Rate had “expired”. We expect the BoE would return to prioritise supporting activity, after a period in which Sterling has stabilised, but cannot act as pre-emptively before the weakening in activity as the BoE signalled it was prepared to do during the summer. We therefore expect additional asset purchases, of £50bn by the end of 2017, in response to somewhat weaker activity data and amid some upward pressure on bond yields. The BoE has emphasised the challenging trade-off it faces between supporting activity and containing inflation risks. Equally important next year will be the financial market counterpart to that trade-off — containing upward pressure on market yields versus supporting confidence in Sterling. Faced with that trade-off, we expect the BoE to act further to cap market yields from rising too much.

David Blanchflower, Bruce V. Rauner professor, Dartmouth College

Most unlikely. The only way rates can rise is if there is an enormous fiscal stimulus and a big boost to infrastructure investment that should happen. The May govt seems to have little clue what it is doing so may well now go down that path. I continue the mantra I have said every January since 2009 that rates in UK cant rise for 5 years not least because real wages still down 7% since 2008. Plus raising rates more than say 50 bps would wipe out many homeowners on variable-rate mortgages, lower house prices, push millions into negative equity and ultimately hurt the banks. The UK is vulnerable to the oncoming shock mostly as it does not have an economically credible government or in fact a credible opposition both of which it had in 2008. There is trouble brewing.

Nick Bosanquet, emeritus professor of health policy, Imperial College

Likely to remain on the fence . . . with falling growth and housing market decline little pressure for move up.

Francis Breedon, professor of economics and finance, Queen Mary University London

Unlikely to be any move in 2017 but up move more likely than down

Alan Budd, former head of the Office for Budget Responsibility

I think that the way you have expressed the MPC’s view could be misleading if it implies that a rise is as likely as a fall. As you know, its actual words in the minutes were that monetary policy “could respond in either direction”, which is true and sensible. I think that there will be no change in the interest rate in 2017.

Frances Cairncross, chair of court, Heriot-Watt University

Interest rates are much more likely to go up rather than down — following rates in the US, and underpinned by an economy that will be stronger than most people currently expect.

Jagjit Chadha, director, NIESR

Monetary policy includes the stock of assets held under the APF as well as statements about the likely stance. The Bank of England would probably prefer to do little to rates while we are negotiating exit but if inflation surprises on the upside and inflation expectations start to become unhinged they may not have much choice.

Alan Clarke, head of European fixed income strategy, Scotiabank

My base case is that Bank Rate and the APF will be unchanged through 2017 and 2018. However, given my view that the pace of GDP growth could slow to as low as 0.2% q/q, there is still a risk that the MPC delivers further policy easing during H2 2017.

David Cobham, professor of economics, Heriot-Watt University

I doubt it: although there will be some rise in inflation economic activity will remain weak and the MPC will look through the inflation rise (much of which will be due to prior, and not to be repeated, depreciation)

Diane Coyle, professor of economics, University of Manchester

The MPC could be starting to have to think of rate rises later in the year, depending on how fast inflation rises, and whether the pound falls again.

Bronwyn Curtis, Society of Business Economists

I don’t expect a change in the monetary policy stance in 2017. Cutting rates when inflation is rising risks stoking inflation further, but the MPC is likely to ‘look through’ any surge due to the fall in sterling as long as it doesn’t result in higher inflation expectations and wage rises. I would like to see the monetary expansion implemented in August 2016 reversed in the first half of 2017, but that seems unlikely. I’m concerned that when household consumption starts to sag and mortgage costs go up in response to higher gilt yields, some members of the MPC will want to ease policy again. Hopefully they will not prevail.

Howard Davies, chairman, Royal Bank of Scotland

No. I expect the Bank to remain poised to move off either foot.

Richard Davies

It will be a tough year for the MPC. Impatience about the record length of low rates grows year on year. This makes the Bank’s way of operating — using the inflation forecast as a guide, not just today’s inflation rate — more difficult to explain. The Bank’s mandate rightly means that the cause of inflation is just as important as the rate. Price rises that are down to a depreciation or being driven up by the NLW are not a sign of an overheating economy — one is down to a weak economy, the other is government policy — and are the type of inflation a central bank should “look through”. I expect Mark Carney and the MPC to hold their nerve. Bank Rate might go up 25 basis points, not more.

Paul De Grauwe, professor, London School of Economics

The BoE will face the trade-off between increasing inflation and economic slowdown. It could very well switch towards monetary accommodation

Panicos Demetriades, professor of financial economics, University of Leicester and former governor of the Central Bank of Cyprus

I can see why they said that. There’s so much uncertainty that anything is possible over the next twelve months. The MPC will have many tough choices ahead if the economy slows down and inflation keeps rising due to sterling’s depreciation. On balance, however, I expect that sterling will stabilise and inflationary pressures will recede. I do not, therefore, expect a change in the stance of monetary policy, although I hold these views with a large standard deviation, due to the considerable uncertainty ahead.

Wouter Den Haan, professor, London School of Economics

If nothing unexpected happens (which of course is never the case), then economic growth will not be a reason for accommodative monetary policy but the somewhat higher inflation will be a reason for a tightening. But given the many Brexit uncertainties, the MPC will respond to higher inflation probably very modestly.

Michael Dicks, chief economist, Wadhwani Asset Management

Increasingly, the consensus among central bankers is shifting — first, in admitting that the efficacy of further doses of QE was in doubt and, second, in admitting that near-zero rates might have negative side-effects. During 2017, I expect this shift to continue — most likely to the point where it is accepted that “artificially low” rates might be a net negative for the economy. Thus, I would not be surprised if the BoE follows the Fed and hikes next year. The chances of this happening I would assess, tentatively, as being about two-thirds.

Peter Dixon, Commerzbank

I suspect that the symmetric bias to monetary policy will remain in place but in practice rates are likely to remain unchanged. Monetary policy has more or less reached the limits of what it can achieve so unless there is a serious unanticipated shock, I don’t see the point in cutting rates further. In any case, the BoE may opt for balance sheet expansion rather than a further rate cut if more easing becomes necessary. However, it is difficult to foresee a rate rise in view of the prevailing uncertainty. Given Mark Carney’s comments suggesting that he is keen to see other areas of policy shouldering some of the load, I suspect the BoE will be reluctant to act and as a result I can see UK monetary policy being on hold for a very long time.

Kevin Dowd, professor of finance and economics, Durham University

I am not expecting any change to UK monetary policy. The MPC should be tightening monetary policy, but recent experience indicates that they lean towards an excessively soft monetary policy stance, and I don’t expect this stance to change.

Charles Dumas, chief economist, TS Lombard

Yes — rates will go up a lot — the right Base rate is probably about 2½%

Jan Eeckhout, professor of economics, University College London

Given inflationary pressure I expect that by the end of 2017 it will more likely to be in interest rate increase.

Martin Ellison, professor of economics, University of Oxford

The pressures are mounting for an increase in interest rates by the end of 2017. Inflation may well rise to above 3% due to the fall in sterling, which is well above the Bank of England’s mandate. The Bank will probably argue for no action as this should be a temporary increase, but even they will be concerned to keep inflation expectations in check. Politically, there have been calls for curbs on central bank independence from both sides of the political spectrum; William Hague has argued that interest rates need to rise to reward savers whereas Ed Balls wants a more nuanced approach to central bank independence. Theresa May made noises supporting the William Hague line in her speech at the Conservative party conference in October 2016, when she criticised quantitative easing and ultra-low interest rates. This makes it progressively harder for the Bank of England to keep interest rates low. Add in the FOMC interest rate hike of 14 December 2015 in the US and the next move looks much more likely to be up than down.

Stephanie Flanders, chief market strategist for Europe, J P Morgan Asset Management

I do not believe the MPC will raise rates in 2017. Most likely it will not do anything further but it seems to be a loosening of policy is slightly more likely than an increase in the next 12 months.

Noble Francis, economics director, Construction Products Association

The Bank of England has clearly highlighted over the last few years that its focus is on GDP growth rather than short-term changes in consumer prices (up or down). As a result, we expect no upward increases in interest rate despite CPI inflation rising above the Bank’s target.

John Gieve, chair, Nesta

I suspect they will be saying exactly the same at the end of 2017 (no doubt adding that conditions are unusually uncertain)

Charles Goodhart,

As noted in the earlier answer, the view that the Phillips curve is dead and wages growth will stay restrained forever is possible, but could easily be wrong. If it is wrong, then interest rates will need to start rising, and perhaps quite quickly, throughout 2017.

Andrew Goodwin, lead UK economist, Oxford Economics

No. I expect 2017 to be something of a non-event with regard to monetary policy. Since the crisis the MPC has set the bar very high in terms of tightening policy and given the scale of the downside risks, it would take very strong evidence of second-round effects on wages and inflation expectations for the MPC to seriously consider raising interest rates.

Stuart Green, UK chief economist, Santander

We believe that a further easing of UK monetary policy is in store for 2017, although given the uncertainties around the outlook, the MPC may move only slowly from the current neutral stance. Over the past year, policymakers have progressively lowered their expectations around growth, while increasing their forecasts for inflation, and therefore complicating the policy decision. But with a material acceleration of wage growth unlikely in our view, second-round inflationary effects should be contained, and any import price shock shortlived. We believe that a real income squeeze across the household sector, coupled with a more cautious investment attitude across the corporate sector, will ultimately result in a further loosening of monetary policy by mid-2017.

Rebecca Harding, chief economist, British Bankers’ Association

I do not expect a shift in monetary stance during 2017. There are inflationary pressures, but the Governor has already said that these can be tolerated in order to fuel growth. The one caveat to this is the speed at which the Fed raises rates. Low interest rates in the UK may not be sustainable if Fed policy weakens sterling too much.

Rupert Harrison, chief macro-strategist, BlackRock

I think they will hold this neutral stance until there is some resolution around the data flow and the outlook for the Brexit negotiations. For example I think prospects for a transition deal would reduce the negative economic impact of uncertainty and the Bank would respond by becoming a little less dovish.

Jonathan Haskel, professor of economics, Imperial College Business School, Imperial College London

If the MPC are looking at the output gap as a driver of inflation, I don’t see that gap moving very much. Demand might fall somewhat due to Brexit, investment uncertainty etc but if there’s also a mild adverse supply shock the output gap may well be the same. So I don’t see much change.

John Hawksworth, chief economist, PwC

I don’t expect any change in UK monetary policy during the first few months of 2017 barring any major economic shocks. Thereafter it is quite possible we could see either modest further loosening through additional asset purchases if growth disappoints, or an initial rate rise before the end of the year if growth is faster than expected and/or inflation rises significantly more than the MPC currently expects. Our base case assumption is that there will be no change in monetary policy in 2017, but there is more uncertainty on either side of this than for many years.

Sarah Hewin, chief European economist, Standard Chartered

I think there could still be scope for another rate cut despite accelerating headline inflation — because the causes of higher consumer prices will be external, rather than due to an overheating domestic economy, policymakers will be prepared to ease policy further if the economy is struggling. There will also be global challenges to consider, ranging from a difficult political landscape in Europe, to the new administration in the US.

Brian Hilliard, chief UK economist, Société Générale

No. The economy has surprised the MPC with its resilience and that momentum, whilst likely to fade, will make it unlikely that policy will need to be eased in 2017. On the flipside, the MPC is obviously talking tough about the inflation risks from the weak pound but we think it is more likely to ease than to tighten when the economy finally cools. Indeed, we expect an easing in 2018.

Martin Hutchinson, columnist, The Bear’s Lair

No, because Carney will still be there.

Ethan Ilzetzki, lecturer in economics, London School of Economics and Centre for Macroeconomics

If the Federal Reserve does indeed proceed with the tightening cycle it forecasting for 2017 (and this is far from certain), it will be difficult for the Bank of England to maintain its zero interest policy. I think the likelihood of monetary tightening in the UK is greater than the likelihood of rates remaining at zero, and certainly more likely than a further loosening that would require unconventional measures.

Richard Jeffrey, chief economist, Cazenove Capital Management

I doubt that UK interest rates will change in 2017, although further rate hikes in the US will change the tone of the international monetary debate. Generally, central banks still seem to believe that the greater risk is in premature monetary tightening. This probably reflects the persistence post-recession stress disorder within central banks and regulators, following the traumatic events of the financial crisis. In reality, there is a growing risk that central banks will find themselves behind the policy curve. Ironically, this could leave us with faster nominal growth, but slower real growth. In this context, I think there needs to be a debate as to whether unconventional monetary policies are inducing economic laziness — and are linked causally with low productivity growth.

Oliver Jones, economist, Fathom Consulting

We expect the MPC to cut Bank Rate by a further 15 basis points to 0.1% by the end of 2017. Our estimate for growth in 2017 is significantly lower than that of the MPC and we expect this downside growth surprise to encourage the MPC to loosen policy and look through the temporary period of high inflation (which is ultimately deflationary in expectation over the medium-term). The timing of this move will in part depend on when growth begins to slowdown more severely. The triggering of Article 50 could well prove to be a key turning point. A further cut in Bank Rate is unlikely to have any material economic impact.

Dhaval Joshi, chief strategist, BCA Research

The BoE will be caught between opposing forces: a potentially inflationary force from the recently higher prices for commodities and weaker pound; and a potentially deflationary force from Brexit uncertainties and if wages cannot keep up with consumer prices. The monetary policy stance will depend on which force wins. But on balance, the BoE is likely to do very little.

DeAnne Julius, former member of the MPC

I expect at least one rise in interest rates by the end of 2017.

David Kern, consultant economist, Kern Consulting

I believe the MPC will have to start tightening policy during 2017, with the first increase in Bank Rate likely to occur around the middle of the year

Stephen King, group chief economist, HSBC Investment Bank

At the moment, the chances are that the BoE will do nothing. The rise in headline inflation won’t persist unless sterling falls a lot further. Wage growth is likely to be relatively subdued, implying that higher headline inflation will simply crimp demand. And, if economic activity weakens, I suspect the spotlight will shift to fiscal policy.

James Knightley, senior economist, ING

Given the relative resilience of growth, rising inflation and a more positive global environment post the US election, financial markets are pricing in a 33% chance that the next move in rates will be a hike. I disagree and think a rate cut is more probable.

Inflation is an issue since it is likely to rise above 3% in 2017 due to higher import costs and rising energy prices. However, that’s much lower than when CPI peaked above 5% in 2008 and 2011 when commodity prices were soaring and VAT was being increased. The BoE “looked through” price rises then and we suspect it’ll do the same now. UK growth risks will be a higher priority.

The combination of weakness from both the household and corporate sectors poses downside risks to growth next year. This will reduce inflation pressures in the medium term so we still think that a rate cut is more likely than a rate hike

Ruth Lea, economic adviser, Arbuthnot Banking Group

Yes, there will be a shift. I expect no changes in interest rates during 2017, but by the end of 2017 I expect the MPC to have dropped the notion of cutting interest rates further, which would be economically unjustified and would exacerbate financial distortions further (I questioned the need for the cut in August). So, their stance will change — the next move will be up.

Warwick Lightfoot, director, Policy Exchange

UK monetary policy operates with an inflation target that means that in practice the central bank has a target that it is allowed to temporarily abandon in the event of an event such as a fall in the exchange rate. Policy is discretionary, erratic and elegantly while opaquely explained. It is not clear how the central bank will respond to inflation, above trend growth or to the structural challenge of unwinding the huge expansion of its balance sheet since 2008.

John Llewellyn, partner, Llewellyn Consulting

As and when activity shows signs of slowing more sharply, the policy rate could be cut to zero. Underlying price pressures do not suggest any requirement for a tightening. However were a further sharp fall in sterling to change inflation expectations and wage behaviour, the Bank would have to think differently.

Jonathan Loynes, chief economist, Capital Economics

Our central forecast is for the current stance of monetary policy to be sustained throughout 2017. But there is scope for more loosening of the economy slows.

Gerard Lyons, chief economic strategist, Netwealth Investments

I do not expect the Bank of England to raise rates in 2017, but as the year progresses they may need to start exiting from their current monetary stance. This would require a reversal of their buying of corporate bonds and exiting from quantitative easing. Money market rates may start to rise, in anticipation of small rate increases in 2018. Led by a change in thinking in the US, I would not be surprised to see a renewed focus on the need for a return to monetary discipline in the UK too.

Stephen Machin, professor of economics, London School of Economics

Quite possibly, especially as US rates have just inched up and price inflation is rising. It does not seem a great idea to raise rates if real wage growth continues to be so weak at the median.

Chris Martin, professor, University of Bath

I expect no change. But, to repeat, I have little confidence in my forecast.

Liz Martins, UK economist, HSBC

We see no move for the foreseeable future, but with risks in both directions. In particular if gilt yields were to continue to push higher and mortgage and other borrowing costs started to follow suit, we think the BoE’s doves might see the case for further easing. On the other hand, continued strength in the labour market and rising inflation would, for many, justify the case for a rise even now — under normal circumstances. If inflation appears to be taking root in expectations and wage demands and growth continued to exceed expectations, then the MPC might return to its previous tightening bias.

Mariana Mazzucato, professor in the economics of innovation, University of Sussex

While the US economy is picking up, the Fed is increasing interest rates as there is no longer a reason to keep them so low (to fend off inflation — which, however, as I argued above is not necessarily bad if a result of growth). As I don’t think the UK will experience growth, it is unlikely that the MPC will increase interest rates by any noticeable degree. Also, monetary policy without fiscal policy does not work. interest rates can be low, but if business does not see growth opportunities, it will not invest. Similarly, money creation through QE, will only end up in the banks if opportunities for investment are not actively created. This is what Keynes meant by the LIQUIDITY TRAP.

Andrew McPhillips, chief economist, YBS Group

We don’t believe the MPC will take any further action during 2017. A further cut to Bank Rate is very unlikely unless the economy takes a large and unexpected turn for the worst. Even then, a further cut to zero or just above is likely to have a negligible effect. The focus is more likely to be on the probability of an interest-rate increase. Our forecasts suggest that inflation will rise above the 2% target but to a level where the MPC will be comfortable to leave monetary policy unchanged, given the slowing growth environment. Even the more hawkish members of the committee are unlikely to want to hike interest rates to control a modest inflation overshoot if the economy is already slowing.

David Meenagh, lecturer, Cardiff University/Liverpool Research Group in Macroeconomics

We think that with the labour market tight, wages will start to grow faster as inflation rises. Therefore the Bank will be unable to ignore the rise in inflation that lies ahead. Interest rates will have to rise gently and QE will need to be reined in and reversed.

Hetal Mehta, senior European economist, Legal & General Investment Management

No, the MPC will have to balance a slowing economy and rising inflation — a mild form of stagflation. Unless financial conditions tighten significantly from the accommodative levels currently, the MPC is unlikely to stoke further inflationary pressures by loosening policy. Similarly, unless there is a sudden loss of confidence in the UK and another sharp currency depreciation that could push inflation higher, tighter policy also seems unlikely.

Costas Milas, professor of finance, University of Liverpool

If inflation approaches the 3.5%-4% range in 2017, I find it difficult to believe that the MPC will remain passive. I wouldn’t be surprised if there was a small hike in 2017.

David Miles, professor of economics, Imperial College, London

I suspect the next move in rates will be up since it is plausible that during the first part of 2017 inflation will move through the target with unemployment still around 5% and positive growth.

Patrick Minford, professor of applied economics, Cardiff Business School

yes, we think so: with the economy strong and hitting labour market constraints we expect inflation to exceed the 2% target as above. With the dollar rising on rising US rates, there will be little scope for keeping UK rates down.

Allan Monks, global market strategist, JPMorgan

I do not expect the MPC to change its interest rate next year. However, I do not share the BoE’s assessment that the risks around its current policy stance are balanced. Pay growth has shown only limited signs of responding to the large swings in inflation seen since the crisis. And we do not expect global growth to do much better than run close to trend. In this scenario growth is likely to slow and the MPC is likely to feel more comfortably in looking through the coming overshoot in inflation. With fiscal policy set to exert a clear drag on growth next year, and underlying constraints on the public finances from weak productivity, there is little “insurance” being offered from the Chancellor. This will place a greater burden on monetary policy to respond to downside growth surprises than is generally appreciated.

Fabrice Montagne, chief UK and senior European economist, Barclays

In line with our or even the Bank’s forecasts, we expect the stance to remain unchanged over the forecast horizon. The Bank will need to see contradicting data before changing anything as it seems pretty comfortable sitting on the fence.

Kathrin Muehlbronner, sovereign risk group, Moody’s Investor’s Service Ltd

We believe that the Bank of England will probably stay put in 2017. It has indicated that it will see “through” a temporary increase in inflation, in particular if the economy weakens at the same time. The big uncertainty is the exchange rate, which will probably remain volatile depending on news regarding the negotiations with the EU.

John Muellbauer, professor, Nuffield College and Institute for New Economic Thinking at the Oxford Martin School

In the face of weaker growth, the MPC’s ‘flexible inflation targeting’ will try to support demand, particularly if 2017-18 inflation is seen as a one-off adjustment in the price level. However, further Sterling depreciation against the US dollar in 2017 might force the MPC’s hand, perhaps pushing Bank Rate to 0.75 % by end 2017. In any case, longer term rates will rise.

Rain Newton-Smith, chief economist, CBI

It’s unlikely that we’ll see any move in interest rates over the foreseeable future: heightened uncertainty around near- and medium-term growth prospects will keep the Bank on hold, and they’ve already indicated willingness to “look through” an exchange-rate driven rise in inflation. Domestic inflationary pressures also remain subdued, particularly with wage growth still tepid and post-referendum GDP growth expected to be softer. In particular, the Bank will probably wait for more details to emerge from EU negotiations in order to fully assess its economic implications. But as with most forecasts at the moment, there’s a lot of risk around our view: eg if growth continues to be resilient, this might spur the BoE into action. Tellingly, the November Inflation Report saw a subtle shift in tone around the outlook for monetary policy, moving away from the bias towards easing just after the referendum. This suggests that the next move in rates, when it does happen, is just as likely to be up as down.

Erik Nielsen, group chief economist, UniCredit

Unlikely. I think they’ll stay on hold in 2017, looking through the higher inflation because of the clear slowdown in activity.

Andrew Oswald, professor of economics and behavioural science, Warwick University

Not much.

David Owen, chief European financial economist, Jefferies

The BoE may claim to have a neutral bias, but the risks for monetary policy in 2017 appear skewed only one way. Our central case is that once QE has run its course (by March if the corporate bond buying continues at its current pace) then policy will be on hold, but the risk is of further monetary easing. In the current environment the relevant time horizon for monetary policy should extend out to at least 3 years, and like between 2008 and 2012 the BoE looks through a period of above target inflation.

David Paton, professor of industrial economics, Nottingham University Business School

Almost certainly no, given the unexpected (by some at least) strength of the UK economy and the recent rise in US interest rates.

Joseph Pearlman, professor of economics, City University

The monetary policy stance will not shift from inflation targeting unless the government changes the BoE mandate, which is unlikely in the extreme. Changes up and down will therefore mainly depend on whether inflation goes up or down.

Ann Pettifor, director, Policy Research in Macroeconomics (PRIME)

No, there will not be a shift in the Bank’s monetary stance next year. The Bank has been pragmatic in the face of weak demand, though the imbalance between monetary and fiscal policy is very wrong, and the new Chancellor seems to want it to remain so. In the meantime the reliance on the BoE’s balance sheet is extreme (via QE, FLS, TFS etc and likewise throughout the world). All this points to the extent of the underlying malaise.

John Philpott, director, The Jobs Economist

No shift in stance, with Bank rate still at 0.25% at end 2017 despite higher price inflation because of continuing concern about the dampening impact of Brexit uncertainty on the real economy

Kallum Pickering, senior uk economist, Berenberg Bank

By cutting the bank rate and expanding its balance sheet, the BoE helped the UK avoid an immediate crisis after the Brexit vote. In our base case, we do not expect the BoE to provide any further support to the economy or tighten policy in response to the sterling-driven rise in inflation. Instead, we look for the BoE to stay put for the foreseeable future. In an upside surprise scenario, however, stronger global and UK growth could lead to inflation overshooting the BoE’s 2% target rate by more and for longer than the BoE would like to tolerate. The BoE could thus begin to tilt from its current neutral stance to a more hawkish one. If Trumponomics work too well, UK rate hikes could be among the surprises for late 2017. This is unlikely but not impossible.

Chris Pissarides, regius professor of economics, LSE

Yes, I expect it to be more biased on tightening. This is partly because of US tightening and hopefully by then there will be less Brexit uncertainty. In fact I think we will have a small rise in interest rates before the end of 2017

Ian Plenderleith, chairman, BH Macro

I would expect the MPC to feel need to raise rates during the year, to restrain rising inflationary pressures — accentuated by weakening sterling, higher energy prices and poor productivity.

Jonathan Portes, professor of economics and public policy, King’s College London

It is difficult at the moment to see the next move being down, even if the economy worsens. Barring negative shocks (which are quite possible) I’d expect the next move to be up.

Richard Portes, professor of economics, London Business School

Bank likely to face stagflation by end-2017. What would you do?

Adam Posen, president, Peterson Institute for International Economics

I think that is the right assessment, an honest self-assessment. Depends upon how much labour supply contracts, how much sterling falls, and how anchored inflation expectations remain. Probably more likely up than down, but not by much.

Vicky Pryce, chief economic adviser, CEBR

I don’t think interest rates in the UK will move at all during 2017 even if inflation stays well above the 2% target for a while which it will probably do as the likely slowdown in the economy next year will act to restrain any impulse by the MPC to raise rates. Wages are unlikely to move up to compensate as most firms will find it hard to increase wages by significantly more than the rate of inflation.

Morten Ravn, professor of economics, University College London

Given my answer on inflation and given that the Fed has raised the fed funds rate target, I would expect the BoE to start raising the short term rates in the new year.

David Riley, head of credit strategy, BlueBay Asset Management

The MPC will be caught between a rock and hard place. Economic stagnation and rising unemployment while inflation will be rising above the MPC target. In the face of stagflation, the MPC will probably sit on its hands in 2017.

Philip Rush, chief economist, Heteronomics

The most likely path is for the MPC’s stated guidance to remain neutral. Although I expect the next rate move to ultimately be a hike, that looks likely to be a few years away. And during 2017 specifically, I see a rate cut as more likely than a hike.

Andrew Scott, professor, London Business School

With fiscal policy taking more of the strain and sterling falling the Bank will focus more on inflation, unless European events trigger major financial market weakness

Andrew Sentance, senior economic adviser, PwC

I believe the UK should follow the US in raising interest rates, and may well do so in 2017. If the US Fed raises rates to 1.25-1.5% by the end of the year as they are suggesting, it will be hard for the UK to sustain its rate at 0.25%. Somewhere in the range 0.5-0.75% seems more likely by the end of 2017.

Philip Shaw, chief economist, Investec

No. UK growth next year is not likely to be convincing enough for the MPC to be comfortable over raising rates, but inflation may be too high for the committee to entertain seriously the need for a cut. True, the MPC did sanction additional QE late in 2011 when inflation exceeded 5%, but then it could justify this with the existence of material economic slack, which is probably not the case currently. The uncertainty surrounding Britain’s Brexit negotiations and the subsequent impact on the economy suggest that the scope for a major policy error is much greater than usual and this may reinforce maintaining the current stance for some time longer.

Andrew Simms, co-director, New Weather Institute

There is a strange and tenacious myth in economic commentary that a single, meaningful interest rate prevails across the economy. In practice, of course, this is nobody’s. What matters to the economy is that cheap, patient money is available for things that matter, such as building a resilient and efficient low-carbon infrastructure. Equally, the cost of money for risky and potentially damaging activities should be high. Unfortunately because of broader policy, pricing and market failures the opposite is often the case. Hence, tax breaks, subsidies and the way investment portfolios get managed means that money flows cheaply in fossil fuel infrastructure and operations. At the same time, necessary and successful emergent sectors like solar and other renewables can still struggle for affordable, patient capital. The privatisation and weakening of the mission of the Green Investment Bank is deeply concerning in this regard.

Once again, prevalent economic uncertainties seem to be having the effect of putting everyone, the MPC included, on ‘watch’, and unlikely to do anything radically different in the ‘phoney war’ period of approaching Brexit negotiations.

Don Smith, chief investment officer, Brown Shipley

The Bank Rate looks set to remain at 0.5% for a considerable period of time, well beyond 2017, although this view is predicated on an assumption that the higher inflation rates that almost certainly will be experienced through 2017/18 do not generate serious upward pressure on wage growth and also that UK economic growth begins to materially slow as Brexit approaches. The cost-driven nature of the rise in UK inflation gives it something of a sell-by date, which the MPC will very likely look beyond.

Andrew Smith, chief economic adviser, Industry Forum

Probably not. On the face of it, the combination of rising inflation and weakening growth will present the MPC with something of a dilemma in 2017. However, absent a wage response, the devaluation-induced acceleration in the inflation rate should be temporary and I expect the MPC to “look through” it as in earlier similar episodes. Indeed, if growth slows more sharply than expected further monetary stimulus cannot and should not be ruled out.

Peter Spencer, professor of economics, University of York

With inflation moving above target, albeit temporarily, there is little chance of a further reduction in the base rate, but with the economic outlook deteriorating, I don’t expect an increase either.

James Sproule, chief economist, Institute of Directors

Up, but ever so slowly. Our view has been tightening is long overdue; low rates have emasculated monetary policy and led to a misallocation of capital (lax monetary policy is more responsible for the rise in house prices than is widely acknowledged).

Gary Styles, director, GPS Economics

On balance I expect no change in Bank Rate in 2017. Although the CPI inflation numbers look likely to worry the hawks this is expected to be offset by weak wage growth and poor economic growth numbers. Any further significant deterioration in the sterling exchange rate will make this a very bumpy ride.

Paolo Surico, professor of economics, London Business School

As previously mentioned, I anticipate a significant increase in inflation. To the extent this may put significant pressures on inflation expectations (either survey or market based), it is not inconceivable to see the Bank of England starting to rise the policy rate towards the end of 2017, especially if the possible weakness of investment in the medium term would have not yet materialised while consumption could still prove resilient to the negative economic outlook.

Silvana Tenreyro, professor of economics, London School of Economics

The BoE will face a very difficult trade-off, with growing inflation and week output growth. The move could go either way. Certainly the terms for Brexit will affect where the economy ends up—and the subsequent actions of the BoE

Suren Thiru, head of economics, British Chambers of Commerce

A prolonged period of monetary stability is the most likely scenario with interest rates to remain on hold through 2017 and into 2018. The Bank of England is going to face a tricky near-term trade-off between tackling rising inflation and slowing economic growth, leaving it reluctant to move interest rates in either direction.

Phil Thornton, director, Clarity Economics

The BoE is right to see rates as likely to rise as to fall as the risks are perfectly balanced. On the one hand rising market interest rates (driven by US markets as Trump lays out his pro-growth policy) could give the MPC room to cut rates. But this will be offset by inflation rising above target fuelling higher wage demands. Seeing those as offsetting each other leaving monetary policy unchanged in 2017 (and maybe 2018) is the best guess for now until the facts change.

Kitty Ussher, managing director, Tooley Street Research Ltd

I think the economy will grow faster than currently expected in 2017 which given we are near the top of the cycle, combined with external inflation pressures, increases the likelihood of interest rate rises. The Fed has already signalled its move into a tightening cycle and I’d put money on the third quarter of 2017 for an interest rate rise in the UK.

Bart van Ark, chief economist, The Conference Board

Inflationary pressures put upward pressure on the BoE to raise interest rates, and more aggressive Fed action beyond 203 raises in 2017 would add more fuel. However, given the maturing of the business cycle, a weakening economy, and the downside risks of Brexit make it likely that the approach will be very cautious. On the whole upside risk for higher interest rates but slowly.

John Van Reenen, professor of economics, MIT

Interest rates will rise in the year

Daniel Vernazza, lead UK economist, UniCredit

I think the MPC is likely to keep the stance of monetary policy unchanged through next year as it faces a trade-off between a lower path for output and a higher path for inflation. Given the expected FX-induced inflation overshoot is temporary, if persistent, the MPC will very likely look through it in order to provide support to output and employment.

John Vickers, warden, All Souls College, Oxford

There could well be a reversal of some easing if the MPC were to focus more on its inflation target. It’s not clear they will though.

Keith Wade, chief economist, Schroders

The Bank of England has to retain the illusion that it might raise rates for the sake of the pound. In practice, the economy will not be robust enough to withstand tighter policy.

Peter Warburton, director, Economic Perspectives

That is a reasonable expectation, based on the economic outlook. My concern is whether the MPC is institutionally capable of approving a rate increase. A reversal of the rate cut last August is only probable once the money market curve fully discounts it.

Martin Weale, professor, King’s College London

Monetary policy is best left to the Monetary Policy Committee, at least by former members. However, just as we had no good explanation why long-term and short term rates had fallen in the way that they did, it seems to me quite possible that there will be a turn. Demand is very weak relative to the level of interest rates and there is no clear explanation for that, notwithstanding the substantial over-diagnosis of the phenomenon that we have seen.

Simon Wells, chief European economist, HSBC

No. If Brexit effects do slow economic activity, there is little chance the BoE will raise interest rates and any political pressure to do so should abate. It can look through a period of above-target inflation. Remember 2011 when inflation peaked above 5% and the BoE was readying another round of easing.

Peter Westaway, chief European economist, Vanguard

I share the MPC’s views that the risks are finely balanced either way. But to the extent that our forecast foresees a weaker growth outlook than priced in, I would say a further monetary easing is slightly more likely in 2017.

Matthew Whittaker, chief economist, Resolution Foundation

With Brexit uncertainty likely to persist over the medium-term, monetary policy is set to remain in something of a holding pattern in 2017. The Bank will obviously need to act if imported inflation sparks a wage-price spiral, but it must balance this against the — for now, greater — risk of tightening too quickly. MPC members are likely to start pulling in different directions in the coming months and I think the next move will be up rather than down, but we shouldn’t expect this to come until 2018

John Whittaker, senior teaching fellow, Lancaster University

The Bank of England has, sensibly, ruled out a negative Bank Rate, which leaves no scope for any meaningful further reduction. The reduction to 0.25% in August 2016 was unnecessary and probably had negligible stimulatory effect. The next move is likely to be a rise, consistent with higher inflation expectations.

Mike Wickens, emeritus professor of economics, University of York

I hope so, but the MPC is staffed with city economists who just look at past data and don’t seem to understand economic theory, the need to look forward and to stop unbalancing financial markets and the economy. All QE has done is to transfer risk not remove it.

Neil Williams, group chief economist, Hermes Investment Management

Doubtful — more likely, low for even longer. The MPC will of course be watchful a weaker pound doesn’t pump inflation. Our simulations at current GBP/USD and oil price have the CPI breaching its +2 per cent year-on-year target by May 2017. But, further GBP weakness and/or oil strength pushes it toward 3%, with 3% surpassed should, for example, oil return to its $65p/b three year average and GBP/USD return toward the parity of the mid 1980s. But, even should that occur, we doubt the Bank would react given the feared hit to growth — akin to the ‘blind eye’ governor King showed in 2011 when CPI breached 5 per cent year-on-year. And this even with austerity now delayed, and a de facto negative nominal rates of about -2½% when we factor in QE.

Professor Trevor Williams, visiting professor, University of Derby

No move in rates. A slowing economy means the bank should look through the price adjustment upward in reaction to the pounds fall. No hike is necessary but no cut either as policy is loose enough. And anticipated the slowdown.

Stephen Wright, professor of economics, Birkbeck, University of London

Hard to tell. The BoE’s behaviour has been odd. Since the mid 80s it has been happy to see sterling depreciate if (and only if) there is a recession. This time it appears to have been happy to see it depreciate in anticipation of a recession that didn’t happen. So unless the recession materialises, the depreciation would lead to inflation, and on past behaviour I’d have expected a tightening. After the recent experience I’d have less confidence I this, but I don’t think the BoE can entirely have forgotten its remit.

Linda Yueh, adjunct professor of economics, London Business School

The chances are that the MPC will not increase interest rates in 2017. The impact of Sterling’s weakness on inflation is likely to be viewed as a temporary issue and not a serious risk to the inflation target over a two-year horizon. Plus, with the ECB extending QE to the end of 2017 (albeit with a smaller programme) while the Fed may well raise rates again, the contradictory impact from the UK’s major trading partners will also contribute to a wait-and-see tendency.

Azad Zangana, senior European economist and strategist, Schroders Investment Management

Unlikely. Weaker growth and weak employment growth will probably stop the Bank from hiking interest rate, but at the same time, elevated inflation will probably stop the MPC from cutting interest rates, or adding more QE. We expect monetary policy to remain on hold for the foreseeable future.