The debate over the UK’s first interest rate rise since the recession intensified today as minutes of the Bank of England’s latest meeting suggested risks to the recovery from an early hike were “receding”.
The Bank’s nine-strong monetary policy committee led by Governor Mark Carney, remained unanimous in voting to hold interest rates at their record low 0.5 per cent and the scale of its money-printing programme unchanged at £375 billion.
But the minutes of the July meeting again suggested that the decision for “some” members was “more balanced” as the economy’s recovery begins to motor. Official growth estimates for the April-June quarter due later this week are set to show more strong expansion with an advance of at least 0.8 per cent expected.
The Bank has not voted to raise rates since the dawn of the credit crunch in July 2007, while no MPC members have voted individually for an increase since July 2011 — just before a summer of turmoil struck the eurozone.
The minutes said: “On one interpretation, the risk of a small rise in Bank Rate derailing the expansion and leaving inflation below the target in the medium term was receding as that expansion became more established.”
They also suggested that the slack in the economy was being used up more quickly than expected in May as the jobs market recovers — potentially supporting the case to raise rates earlier rather than later.
But the minutes were not as hawkish as many in the market expected as they also stressed inflation and wages remaining under control. Sterling eased slightly as economists suggested the MPC appeared to be putting more emphasis on the weakness of wage growth.
The MPC’s doves also argued that “a premature tightening in monetary policy might leave the economy vulnerable to shocks, with the effectiveness of any further stimulus uncertain”.
Samuel Tombs, chief UK economist at Capital Economics, said the minutes showed the timing of a first rate hike was “edging closer”.
He said: “The risk of a 2014 hike is growing and it seems likely that one or two members will be voting to raise interest rates within the next few months.”
The latest figures from the British Bankers’ Association meanwhile showed rising mortgage approvals in June following four successive months of decline, suggesting High Street banks were getting to grips with new, tighter lending criteria. Approvals for house purchase rose 3 per cent to 43,265.