The last month’s data has provided further evidence that the UK economy is enjoying a ‘Goldilocks’ scenario of solid, but not excessive, growth and low inflation. The latest PMI surveys suggest that the economic recovery retained a healthy degree of momentum at the beginning of Q2, following the 0.8% rise in GDP in Q1. Meanwhile, price pressures have continued to ease, with inflation falling to its lowest level since October 2009 in March. Admittedly, concerns have been building that an overheating housing market may force the MPC to hike rates early. But the Financial Policy Committee (FPC) could use prudential tools to cool the market, and there are signs that demand may be losing some momentum anyway. Accordingly, as long as house prices can be contained, we expect that the MPC will be able to leave interest rates on hold until the second half of 2015.
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