The Bank of England is set to keep interest rates on hold on Thursday as Britain prepares to kick off formal divorce proceedings with the EU.
In what will be the last Monetary Policy Committee (MPC) meeting before Article 50 is triggered later this month, policymakers are expected to leave rates at 0.25% in the face of potential economic upset from Brexit negotiations.
This is despite a growing number of MPC members becoming uncomfortable with soaring inflation.
The meeting will also see outgoing deputy governor Charlotte Hogg vote on the MPC for the first – and most likely last – time following her resignation after failing to declare that her brother worked for Barclays.
Her resignation was confirmed on Wednesday – less than a fortnight into the role – after she came under heavy fire for breaking the Bank’s code of conduct by not declaring the conflict of interest.
She will remain at the Bank for up to three months for “transition purposes”, according to the Bank.
The Bank’s US counterpart, the Federal Reserve, raised its benchmark rate for the third time in a decade on Wednesday by 0.25%, citing a strengthening jobs market.
But the Bank of England will want to keep a steady monetary path on this side of the Atlantic until the impact of Brexit becomes clearer.
Howard Archer, at IHS Global Insight, said: “We believe the Bank of England will remain pretty tolerant on the inflation overshoot given the prolonged, highly uncertain outlook that the UK economy is likely to face as the Government negotiates the exit from the EU.”
Britain’s economy has so far confounded any expectations for a slowdown amid political turmoil, with the latest forecasts from the Office for Budget Responsibility (OBR) showing a sharp upward revision to its outlook for UK gross domestic product (GDP) this year from 1.4% to 2%.
But the fiscal watchdog painted a more gloomy long-term picture, downgrading next year’s growth from 1.7% to 1.6% and cutting forecasts for 2019 from 2.1% to 1.7%, before 1.9% growth in 2020 and 2% in 2021.
The Bank has also upgraded its GDP forecasts twice since November, while official figures showed growth was even more robust than first thought in the final three months of 2016, at 0.7%.
There may be clouds on the horizon, though, as surging inflation begins to rein in consumer spending.
Britain’s high street suffered its worst February since 2009, largely as consumer spending came under pressure, according to the latest BDO High Street Sales Tracker.
Inflation reached a two-and-a-half-year high of 1.8% in January as food and fuel prices pushed up the cost of living, while the bank expects inflation to rise close to 3% later this year due to the weak pound.
Economists believe this will not be enough to persuade the Bank to shift its stance on rates.
Investec experts are pencilling in rates to remain on hold until the fourth quarter of 2019.
Mr Archer said: “While we believe the next move in interest rates will be up, we do not see this happening before 2019 and it could very well be delayed beyond then.”