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The Bank of England voted to keep interest rates unchanged at 0.25 per cent on Thursday, but for the first time in eight months the decision was split with one of the nine members voting to raise rates.
Kristin Forbes, an external member of the central bank’s Monetary Policy Committee, voted to raise rates by a quarter of a percentage point, but her dissent changes little at the BoE as she will be departing the MPC at the end of June.
A majority of vote-setters judged consumer spending growth was slowing as expected and wage growth was sluggish, so its February guidance of “some modest withdrawal of monetary stimulus” over the next three years still applied.
A few of these members, however, were becoming less comfortable with this conclusion. “Some members noted that it would take relatively little further upside news on the prospects of activity or inflation for them to consider that a more immediate reduction in policy support might be warranted,” the minutes of the MPC meeting stated.
The majority were comfortable with the MPC stance. They noted wage growth had been “notably softer than expected, despite a further fall in the unemployment rate”, that “estimates of retail sales had weakened notably” and that other indicators were “mixed”.
For them, the next move in interest rates was as likely to be up as down. If growth slowed more rapidly than the MPC forecast in February, circumstances “could warrant additional policy support”, while if growth remained resilient, “monetary policy may need to be tightened sooner and to a greater degree” than expected by financial markets. Traders are betting on the first 0.25 percentage point rise only in early 2019.
Ms Forbes disagreed. In the minutes, she noted that inflation was rising fast enough not to be tolerated any longer and was likely to remain above the BoE’s 2 per cent target for at least three years. She also noted that growth had not slowed as expected by the bank and although consumers appeared to be feeling a financial pinch, “growth was likely to be supported by other components of demand, such as net exports”.
Charlotte Hogg, the deputy governor for banking and markets who resigned this week in a conflict of interests scandal, was present at the meeting and voted with the majority. She will continue in her position at the BoE for up to three months before departing and will attend policy meetings in the interim.
The MPC also retained its policy on quantitative easing. It is continuing to create money worth up to £435bn which it pumps into the economy by buying government bonds. The bank has indicated that it will not reduce this amount to tighten monetary policy until official interest rates have reached 2 per cent.
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