We have been here many times before. In the eight years since the Bank of England cut interest rates to a then record low of 0.5%, there has been regular speculation in the City that borrowing costs are heading back up.
The latest flurry of excitement was caused when Kristin Forbes broke ranks with her monetary policy committee colleagues and said something should be done about rising inflation.
The 8-1 vote was a surprise, as was the evidence that Forbes was not alone in her concerns. Minutes of the MPC meeting said that it wouldn’t take a lot more inflationary pressure for some members to join her in pressing for a tighter stance.
That was the cue for a rally in the pound as the financial markets contemplated interest rates being raised sooner than expected. Coming less than 24 hours after the Federal Reserve raised US rates, dealers started to question when the Bank of England would follow suit.
The simple answer is not at any time soon. To start with the obvious, it takes at least five MPC members to secure a rate rise. The closest the committee has got to an increase was in 2011, when three members voted for a rise. Piecing together a five-strong caucus of rate hawks will be made more difficult when Forbes leaves the MPC at the end of June.
Nor is there much evidence that Britain is in the early stages of an upward inflationary spiral. Far from it. The cost of living is going up as a result of higher oil prices and the fall in the value of the pound, but wage pressure is abating. The MPC will only be justified in raising rates if dearer imports trigger higher wage deals to compensate workers for the erosion of their living standards. This is simply not happening.
The Bank has raised its estimate for growth in the first three months of 2017 to 0.6%, but this is as good as its gets for a while. Welfare cuts and rising prices will squeeze real incomes and choke off consumer spending in the months ahead. Competitive pressures will force companies to absorb higher import costs into their profit margins.
With wage growth nugatory and Brexit talks about to begin, the City’s much-anticipated rate rise is still a way off. It certainly won’t happen this year.