Interest rates decision no surprise, says EY

ACCOUNTANCY and advisory firm EY’s said the Bank of England’s decision to maintain interest rates at 0.5% for another month is not a surprise.

Sara Fowler, EY’s senior partner in the Midlands, said: “Inflation fell from 1.9% to just 1.7% in February –  under the MPC ’s 2% target for the second successive month and slightly below the rate expected by the Committee in February’s inflation report.

“This made it no surprise that this month’s vote was to once again keep rates unchanged.

“Activity in the economy continues to power ahead, and the IMF’s recent upgrade to its UK growth forecast, pays tribute to this.

“The prospects for inflation continue to look very benign. Signs of a supermarket price war, recent company announcements of energy price freezes and falling import prices, thanks to the strong pound, will all support a further drop in inflation over the coming months.

“Meanwhile, the pace of expansion in the labour market has cooled, suggesting that slack in the economy is being used up at a slower rate. The rise in employment in the three months to January was the smallest since July, while the headline unemployment rate was above the MPC’s latest Inflation Report forecast.

“So the case for a rate hike continues to remain very weak – indeed, the MPC’s mandate, to keep inflation close to 2%, is likely to be missed with a substantial undershooting over the next few months.”

Fowler said EY expects rates to remain on hold until late 2015.