MPC minutes hint at keeping rates on hold

Click to follow
The Independent Online

The Bank of England is likely to give homeowners a respite from rising interest rates in September after toying with keeping the base rate on hold earlier this month, yesterday's minutes of its Monetary Policy Committee meeting showed.

The Bank of England is likely to give homeowners a respite from rising interest rates in September after toying with keeping the base rate on hold earlier this month, yesterday's minutes of its Monetary Policy Committee meeting showed.

The doveish tone of the minutes supported expectations that interest rates are near their peak, with only one or two more rises likely. The pound slipped to a near three-month low against the euro as traders bet that the next rate rise would not be until November at the earliest.

The minutes of the meeting on 4 and 5 August showed there was unanimous support from the nine-strong committee for the quarter-point increase in the base rate to 4.75 per cent. They also revealed there was a discussion against an increase given the current lack of inflationary pressures, before concluding the arguments were "not ... persuasive".

John Butler, a UK economist at HSBC, said: "In contrast to recent MPC discussions, the debate was not about the pace of interest rate rises but more whether they should hike at all. Overall it seems clear that rates will remain unchanged at the September meeting and probably October too."

Echoing last week's quarterly Inflation Report, the MPC said inflation was forecast to stabilise at its 2 per cent target in two years, the global recovery remained "largely intact" and soaring oil prices were not expected to affect the UK. The minutes highlighted five "major downside risks" to inflation - a more abrupt house price slowdown, a slower pick-up in inflation, narrowing profit margins, the impact of higher oil prices on external demand and potentially higher economic growth - against two upside risks.

There was no discussion of a half-point rise in borrowing costs, a move that looked possible in the run-up to the MPC's decision given the pace of economic growth. Instead, the MPC banked on a 25-basis point rise being enough to bring inflation back to its 2 per cent target over the next couple of years.

Richard Iley, at BNP Paribas, said: "In terms of the discussion of the immediate policy decision, the overwhelming impression is of a committee still wedded to caution. The MPC clearly wants to continue to move cautiously until the impact of past tightening can be better judged."

Just one member - almost certainly Sir Andrew Large, a deputy governor - brought up Britain's consumer debt crisis when debating the need for an increase. "A rise in the repo rate now would help reduce the difficulties that could pose for monetary policy in the future," one member argued, according to the minutes. Sir Andrew has consistently stated the case for higher rates to calm the housing market and jolt consumers out of the borrowing binge that passed the £1 trillion mark in June.

Comments