LONDON: The ratings agency Standard & Poor’s has warned that Britain’s economy may not be strong enough to support an interest rate rise following hints from policymakers that there could be an increase in the cost of borrowing next month. S&P said it was sceptical that the Bank of England could justify a rate rise after recent business surveys showed an expected recovery from a weak first half of the year had failed to materialise. In a surprisingly robust critique of the central bank’s motives, the ratings agency said Threadneedle Street was talking up the idea of an imminent rate rises merely to stop the pound sliding. A string of Bank officials have made speeches in recent weeks to say that it may be necessary to raise rates at the November meeting of the monetary policy committee and press ahead with further rises next year to cool rising prices. Last week governor Mark Carney said the Bank was ready to raise the cost of borrowing should the economy continue to show signs of strengthening. “All the indications are that it is – in the relatively near term you can expect that interest rates will increase,” he said. In what will be seen by City investors as a rebuttal, S&P said: “We remain a bit sceptical as to how justified such a hike would be in the near term. One rate rise may come in November, but further increases aren’t justifiable given Britain’s weak wage growth. Overall, we believe the Bank and Mark Carney’s recent statements are primarily aimed at propping up sterling to reduce imported inflation pressures.”
All the major ratings agencies have voiced their concerns about Britain’s weakening economy, most recently Moody’s, which downgraded the UK to Aa2 from Aa1 to reflect the likelihood of a hard Brexit and a squeeze on the public finances that it said would damage the UK economy’s long-term health. A survey of the construction industry earlier this week cited Brexit anxiety as the chief reason for the building sector entering a recession in September driven by a slump in commercial and infrastructure activity. Britain’s services sector expanded at a “modest” pace last month amid concerns about the impact of Brexit, which dampened orders and hit business confidence. Service sector companies reported that strong consumer spending had underpinned expansion. The manufacturing sector performed well, but activity was lower than earlier in the year. Markit said the composite CIPS purchasing managers’ index survey put the UK on track for a third quarter of weak growth this year, with the period covering the three months to the end of September likely to show GDP growth remaining at 0.3%, the lowest in the G7.
