There are signs of a three-way split emerging on the Bank of England’s interest rate setting committee, with one member suggesting that monetary policy could be loosened even further.
This is the first time since September 2013 that the monthly minutes have raised the possibility of more stimulus being injected into the UK economy.
The last time any member voted to decrease rates was part of the unanimous decision in March 2009 that took them down to their current record low. The summer of 2013 was the last time any members voted for an expansion of the quantitative easing programme.
While the minutes of the February meeting, published on Wednesday, showed Monetary Policy Committee members voted unanimously to keep rates and asset purchases on hold, the details show there is more divergence in outlook than the headline 9:0 vote suggests.
The records note that for two members the immediate decision remains “finely balanced” but that “there could well be a case for an increase in bank rate later in the year”.
The minutes do not record the identity of the members making comments, but Martin Weale and Ian McCafferty only stopped voting for immediate rate rises in January.
However, in the other direction, one member felt that “the next change in the stance of monetary policy was roughly as likely to be a loosening as a tightening”.
The dovish note follows governor Mark Carney’s comments at last week’s inflation report that the BoE no longer saw 0.5 per cent as a floor for interest rates, in a signal that if deflationary forces caught hold in the UK, it would be willing to embark on more quantitative easing or cut the bank rate further towards zero.
Inflation has fallen to a record low of 0.3 per cent, but the minutes reiterated the BoE’s view that this is largely due to the fall in oil prices and the rise in the value of sterling after mid-2013, factors which will “dissipate towards the end of 2015, causing inflation to pick up towards the target fairly sharply”.
All members, however, were recorded as saying it was “more likely than not” that rates would “increase over the next three years”.
Fabrice Montagne, economist at Barclays, said that considering the strong economic forecasts from the BoE he would “caution against an overreaction to this suggestion of monetary loosening,” adding he still expects rates to rise at the end of the year.
The market consensus is for an initial rate rise by the first quarter of 2016.
Martin Beck, senior economic adviser to the EY Item Club, said there was a “mixed tone” in the minutes, adding “the divisions among the MPC which appeared to have diminished in light of January’s unanimous vote, may be re-emerging”.
The minutes discuss in detail the risks of wages undershooting and overshooting the forecasts. Alan Clarke, economist at Scotiabank, said the “overwhelming takeaway” was that they remain “the key influence on the timing (and possibly direction) of the next monetary policy move”.