Steve Smith’s monthly look at data from the Bank of England.
The UK base rate remains at 0.5% per annum with the November Monetary Policy Committee voting 7 to hold and 2 wanting an increase.
Views on the timing of the first increase in base rate are being affected by a number of factors including inflation which is trending substantially below the 2% target. CPI may fall below 1% when the impact of lower food and oil prices feed fully into the numbers together with the favourable change in exchange rates over recent months.
In the chart below we have added the CPI trend (right axis) to the GBP LIBOR (left axis). For a second month 12 month GBP LIBOR all fell slightly after nearly a year of small but regular increases.
In November 1 year GBP LIBOR fell by 0.005% per annum ending the month at 1.035%% per annum whilst 3 month and 6 month GBP LIBOR held at 0.53% and 0.675% per annum respectively.
The MPC view could change quickly but based on trends in GBP LIBOR the first increase in UK base rate is most likely in Q2 or maybe even Q3 2015. By then some of the causes of reduced inflation will have worked through the numbers causing CPI to start rising.
In my view the later the first increase the quicker it will be followed by the second increase.
