Newspaper article The Journal (Newcastle, England)

MPC Split on Rate Rise for First Time since 2011

Newspaper article The Journal (Newcastle, England)

MPC Split on Rate Rise for First Time since 2011

Article excerpt


THE prospect of an interest rate hike before the end of the year was reopened yesterday as it was revealed that two members of the Bank of England's monetary policy committee (MPC) voted for a 0.25% rise this month.

Minutes from the MPC's August meeting showed that Ian McCafferty and Martin Weale argued that improvements in the economy meant it was time for an increase.

It was the first split vote on rates since July 2011 and broke the consensus under governor Mark Carney in which all of the main monetary policy decisions since he took charge last summer have been unanimous.

Economists said the dissent meant the door was left open for a possible interest rate hike before the end of this year - a possibility that only a day earlier had seemed to fade as figures showed inflation dropped sharply to 1.6% in July.

Markets have pencilled in the most likely timing for a rise as next February but the pound rose a cent against the euro yesterday as currency traders recalibrated the probability of it happening earlier. It was also up against the dollar.

The likelihood of a rise this year has appeared to ebb in recent days because of falling inflation and last week's figures showing a 0.2% fall in pay - the first decline since the height of the recession in 2009.

At the same time the Bank of England said it would take greater account of pay when deciding when it should raise rates.

Yesterday's minutes, from the MPC meeting of August 6 and 7, saw members vote 7-2 in favour of maintaining rates at 0.5% where they have been for more than five years, after they were slashed to try to help the economy back to health.

Prospects of an increase have risen with the improving economy. Policymakers on the committee must weigh up the need to keep a lid on inflation without snuffing out the recovery.

The minutes said: "For two members, in particular, economic circumstances were sufficient to justify an immediate rise in Bank rate."

Mr McCafferty and Mr Weale argued that despite weak pay growth, the Bank's actions ought to anticipate its inevitable rise, adding that a rate of 0. …

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