The tipping point: Bank’s no-change camp ‘fraying at the edges’ on rates

Seven members voted to keep rates at 0.5%, while two voted for a hike to 0.75%.

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The Independent Online

More of the Bank of England’s  interest rate setters could be moving towards voting for a rate rise, minutes from the Monetary Policy Com-mittee’s latest meeting suggested yesterday.

The record showed two of the MPC’s nine members – Ian McCafferty and Martin Weale – maintaining their vote for a quarter-point rise to 0.75 per cent. But, more significantly, the minutes reported a “material spread” of views among the seven-strong no-change bloc over future risks.

Some members worry growth will falter and consumer price inflation will remain below the Bank’s 2 per cent target for far longer than expected, but others fear an inflation risk if rates are held at record lows for another year, as slack in the economy is used up.

Many analysts interpreted the minutes as more hawkish than the Bank’s Inflation Report forecasts last week, which in effect endorsed market expectations that interest rates will not start to climb until next October. At that time the Governor, Mark Carney, also stressed recovery risks such as the “spectre” of eurozone stagnation.


Samuel Tombs of Capital Economics said the consensus in the no-change camp was “fraying at the edges”. He added: “The minutes of the meeting strike a more balanced tone than last week’s Inflation Report and signal that it might not take much positive news for some other members to join the two already voting to raise interest rates.”

Potential switchers could include the deputy Governor Ben Broadbent, who refused to back the MPC’s last round of quantitative easing in July 2012.

After the minutes were published, the pound rose by more than a cent against the dollar, as traders brought forward their rate rise expectations.

However, not all City analysts saw a major strengthening of hawkish sentiment in the minutes.

“It is difficult overall to characterise the minutes as hawkish or dovish – just uncertain,” said Philip Shaw of Investec.

“The majority are perhaps not quite as cohesively dovish as we had expected. Still, we doubt any additional dissenting votes will materialise within the next three to four months,” said Ross Walker of the Royal Bank of Scotland.

The hawks on the MPC worry about rapidly falling unemployment – currently 6 per cent – sharply feeding into wages, but the majority of the MPC have focused on the benign inflation outlook as oil and food prices sink.

Inflation ticked up to 1.3 per cent in the year to October, the Office for National Statistics reported this week.