Bank of England vote only 6-3 keeping base rate at 0.5%

The Bank of England’s Monetary Policy Committee (MPC) at its monthly meeting voted by a majority of only 6-3 to maintain Bank Rate at 0.5%.

The Hawks voting for an increase to 0.75% were Andy Haldane, Michael Saunders and the outgoing MPC member Ian McCafferty.

Some market analyst are now anticipating a quarter percent rate increase to 0.75% possibly at the August meeting. However, there will be many twists and unpredictable figures turn between now and then especially considering the politically volatile global market and how external costs and demand affect our own domestic inflation rate.

The latest report on the decision to maintain the current rate indicates:

CPI inflation was 2.4% in May, unchanged from April. Inflation is expected to pick up by slightly more than projected in May in the near term, reflecting higher dollar oil prices and a weaker sterling exchange rate. Most indicators of pay growth have picked up over the past year and the labour market remains tight, suggesting that domestic cost pressures will continue to firm gradually, as expected.

A small margin of excess demand was projected to emerge by early 2020, feeding through into higher rates of pay growth and domestic cost pressures. Nevertheless, CPI inflation continued to fall back gradually as the effects of sterling’s past depreciation faded, reaching the 2% target in two years.

GDP was expected to grow by around 1.75% per year on average over the forecast, conditioned on the gently rising path of Bank Rate implied by market yields at the time. In those projections, growth continued to rotate towards net trade and business investment and away from consumption. While modest by historical standards, the projected pace of GDP growth over the forecast was nevertheless slightly faster than the diminished rate of supply growth, which averaged around 1.5% per year.

The Committee’s best collective judgement remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon. For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.

Click here to read the full monetary policy summary and minutes.

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