MPC set to embark on tightening cycle

The collective view of the Monetary Policy Committee (MPC) in June was that “an ongoing tightening of monetary policy over the forecast period” would be necessary if the economy evolves in line with its forecast. Since then, the hard and survey data have added to the evidence that growth rebounded in Q2. Admittedly, the vote looks likely to be split, with Jon Cunliffe hinting in a speech that he will wait for signs that domestic inflationary pressure has strengthened further before voting to raise rates. But while it’s true that inflation and wage growth have been a little subdued, the latter is already in line with the Bank’s forecast for Q4. Overall, we think investors are right to expect the MPC to raise interest rates in August. What’s more, so long as growth remains robust over the remainder of the year, as we expect, and progress towards a deal is made in the Brexit negotiations, the Committee is likely to raise rates again in November.