The latest labour market data suggested that the UK Economy is operating at close to capacity. The current employment rate is 75.7%; virtually a modern record for the UK and crucially this job creation was centred more towards full time employees rather than self or part time employees. The demand for labour is starting to feed into wage growth with average earnings excluding bonuses 3.3% higher in the three months to October than they were a year ago. Private sector pay growth is rising the fastest at the moment but public sector pay awards are gathering pace; an example of which was the recently announced 3.00% deal for NHS workers.

In normal circumstances, evidence of a tight labour market spilling over into an increase in average earnings would put the MPC on alert and markets on notice to expect an interest rate rise.

But these are not normal circumstances. Predictably it’s the same news story making the headlines in the UK and that of course is Brexit. To put the result of the last week’s confidence vote into perspective; Theresa May won 63% of the votes cast, Jeremy Corbin won his 2016 Labour leadership challenge with 61.8% and 51.9% of voters ticked the box to leave the EU. The biggest problem is that the issue is not binary; opponents of how Theresa May is dealing with Brexit may agree with each other that a new leader is required but then, once installed, they will disagree with each other about the course the new leader should take. Without wishing to sound defeatist, the most apposite quote we have heard about Brexit is still that ‘it is like trying to take the eggs out of an omelette’ and at time of writing the country is desperately in need of the political equivalent of Mary Berry to save the day.

Back to all things monetary, where the range of options are more straightforward. The Bank of England is on record as saying that UK interest rates could move in either direction in the event of a No Deal. Of course, in such a febrile atmosphere, any announcement or public comment can be leapt on by either side of the debate to make political capital. Our view is therefore that the MPC will want to avoid making a decision or announcement until there is either irrefutable economic proof that interest rates need to move immediately or the political atmosphere improves sufficiently to provide some sort of clarity on the UK’s future relationship with Europe.