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Pork Pies and Interest Rates Rises!

Making Sense of Economics

inflation

Our monthly economic review is intended to provide background to recent developments in investment markets as well as to give an indication of how some key issues could impact in the future.  It is not intended that individual investment decisions should be taken based on this information; we are always ready to discuss your individual requirements. We hope you will find this review to be of interest.

MPC VOTE SUGGESTS RATE RISE IN MAY

Although interest rates were left on hold following the Monetary Policy Committee (MPC) meeting on 22 March, a split vote appears to have paved the way for a rate hike at the next meeting in May.  This was a departure from the unanimous vote to leave rates unchanged at the previous meeting in Februar y. And this has firmly reinforced the consensus amongst economists that the MPC will raise rates for the second time since the financial crisis when it next convenes on 10 May.

Despite the recent rises, interest rates clearly remain exceptionally low by historic standards. However, it is increasingly apparent that we have now entered a period of monetary tightening

IS THE HOUSEHOLD INCOME SQUEEZE ABOUT TO END?

A decline in the rate of inflation along with increasing wage growth has boosted hopes that an end to the squeeze on household incomes may be in sight.

According to the latest labour market statistics, average weekly earnings excluding bonuses increased by an annual rate of 2.6% in the three months to January 2018. While this did represent a small decline, it also continued the trend of graduallrising nominal wage levels that has been evident in recent months.

INFLATIONARY PRESSURES START TO EASE

The rate of inflation in the UK fell to a seven-month low in February as the impact of sterling’s depreciation in the aftermath of the EU referendum starts to fade.

Along with pork pies, another 35 items have been removed including Edam cheese, lager in night clubs and camcorders. Among the items set to feature in future inflation indices are exercise leggings, chilled mashed potato, quiche and body moisturising lotion which, apparently, more accurately reflect contemporary British spending habits.