The winds of change

There were a few bullish predictions made at the start of this year from various industry commentators as to when interest rates would start rising again. Some analysts predicted as early as March but the money seemed to be on May.

Well I was never in this camp. In fact I had a light hearted wager back in February with a few colleagues as to when the MPC might raise rates again and my prediction was February 2012. At the time my guess was scoffed at but I can’t see too many people laughing now.

So why has nothing happened and why is possible that we could get through the rest of the year without a rate rise? A combination of factors of course but in the main it’s the fragile state of the economy. Figures just out point to a growth of 0.5% in the first quarter of the year but this is scarcely something to shout about. In fact taken against a backdrop of a drop in growth in the last quarter of 2010, we are at best in neutral territory but where do we go from here? Worryingly construction was down by 4.7% which does not bode well going forward. Also a quick look at the recent GfK NOP’s Consumer Confidence Index suggests that confidence is falling off a cliff with the figures last dropping so low during the recession. I can’t seem unemployment statistics recovering any time soon either. This coupled with stagnant house prices (at best) and low lending levels means that we are certainly not out of the woods with the economy yet.

I think the MPC will take this into account at their meeting next week and rates will be held despite the lobbying from arch hawk MPC member Andrew Sentence to push rates up.

I think my bet’s looking pretty safe for the time being.