David Prosser: No time for the first interest-rate rise
Wednesday 06 April 2011
Outlook It's decision time for the Monetary Policy Committee, which begins its April deliberations on interest rates and quantitative easing today. Will yesterday's unexpectedly strong showing from the services sector – the dominant part of the economy after all – strengthen the hand of the three MPC members already pushing for the cost of borrowing to begin rising?
Probably not. The chances are still that we will get another hold decision when the meeting concludes tomorrow. While the latest snapshot of the performance of services companies is encouraging, this is one month's data from a survey that does produce occasional outliers (it doesn't fit the picture painted by the British Chambers of Commerce yesterday, for example). Moreover, the data is notuniversally positive: businesses' expectations for the month ahead have fallen.
Also, even if we accept that the services sector is further down the road towards a sustainable recovery than previously thought, other parts of the economy look much less robust. Notably, for most consumer-facing businesses – and particularly the high street – life seems to be getting harder rather than easier. Look at HMV yesterday, or Marks & Spencer today.
Above all, however, the MPC will be aware that as from today, most Britons are facing tougher times thanks to the fiscal-policy changes that take effect on the first day of the 2011-12 financial year. To add a monetary-policy tightening to their woes just at the same moment would be to damage confidence unnecessarily. The money remains on next month for the first interest-rate rise, if not even later.
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