Davy Research

UK economy

First rate rise in a decade but gloomy outlook for UK growth

DAVY VIEW

There were few surprises today as the expected 25bps hike and conditional future rate path were in line with expectations — that is for one further rate hike by end 2018. However, the Monetary Policy Committee (MPC) forecasts are based on an orderly Brexit and upturn in wage growth and there is little current evidence that either will occur. Finally, the MPC painted a gloomy picture of the UK’s growth potential putting it at about 1.5% in the medium term, much lower than the 2% OBR estimate. This is due to perennially weak productivity growth, which in our view, will only be exacerbated by Brexit.

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