Interest rates should remain on hold, says Item Club
The Bank of England will meet next week (pic: Terry Murden)
Interest rates should remain on hold as Britain looks poised for an uplift in activity, says a key forecasting group.
The EY Item Club says the decisive general election result and the prospect of tax cuts will provide a short-term boost to the economy.
It expects an increase in business investment and projects that had been delayed during 2019. Consumers may also be more prepared to step up their discretionary spending.
However, it warns that issues around an EU trade deal remain and urges the Chancellor to invest in infrastructure.
In its Winter Forecast the Club urges caution on monetary policy and believes that interest rates should remain at 0.75% this month – and likely beyond – “given that the economy looks well-positioned to pick up early on this year, fiscal stimulus is on the way and the labour market also looks strong.”
The EY ITEM Club believes that the Bank of England can justifiably remain in “wait and see” mode, despite recent indications from some MPC members that they may act quickly on interest rates.
It has increased its projection for GDP growth to 1.2% in 2020 and 1.7% in 2021, compared to the 1% and 1.5% predicted in its last quarterly forecast.