Bank plays waiting game as export growth slows

With trade figures flagging and no sign of a rebound at home, it's no surprise that interest rates have been held for another month.

by James Taylor
Last Updated: 19 Aug 2013
You won't be surprised to learn (not least because we've written it 26 times before) that the Bank of England's Monetary Policy Committee decided today not to raise interest rates from their current record low of 0.5%. With all the grim news on consumer confidence lately, that was always going to happen. But today's news on the trade deficit - which was unchanged at £2.8bn in April - will have sealed the deal. The rebalancing process has a way to go yet...

Nobody really expected the Bank to do anything other than sit on its hands this month (although it will be interesting to see how the nine-strong MPC voted, particularly now arch-hawk Andrew Sentance has been replaced by Ben Broadbent). Most people still expect interest rates to go up later this year, since inflation continues to inch up inexorably towards 5% (thanks to higher food and fuel bills, as we wrote yesterday). But to do so now, when the economy still looks extremely fragile, would be a brave (/daft) call indeed.

On the plus side, the goods trade gap narrowed last month, from £7.7bn to £7.4bn, as we exported slightly more and imported slightly less. But the surplus in services also fell, from £4.9bn to £4.6bn, which meant the overall deficit was the same as it was in March. Some encouraging signs, then - but it would be very difficult to see these figures as evidence of an export-led recovery. If the economy is starting to rebalance and reduce its reliance on the City, it's certainly not doing so rapidly.

Part of this rebalancing involes reform of the banking sector, of course, so it was interesting to see how the heads of our biggest banks behaved yesterday, when they appeared before the Treasury Select Committee to talk about the Independent Banking Commission's recommendations on the issue. You might expect the industry to put on a united front in the face of all these regulatory threats, but actually the four men seemed unable to agree about virtually anything. We can't help feeling this will only hurt their chances of getting out of this process lightly - but in an industry that has always been pretty dog-eat-dog, perhaps they can't quite bring themselves to play nicely...
Economy Misc

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