Inflation Report stems rise in market interest rates

Speculation that the Bank of England’s May Inflation Report would show that the Monetary Policy Committee is preparing to raise interest rates proved to be unfounded, prompting a significant fall back in UK market interest rates and sterling following the Report’s publication. Nonetheless, both market rates and the pound remain higher than they were a month ago, and markets are still primed for a rate rise in the first half of 2015. While much may depend on the success of any action by the FPC in dealing with the housing market, we still think that the MPC could be persuaded by the weak inflation outlook to keep interest rates on hold until the second half of 2015.