On Thursday, only one member of the Monetary Policy Committee, a BoE panel which determines the setting of rates, voted to increase interest rates to 0.75%.
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The release of the Inflation Report, rates decision and minutes – all previously published on separate dates – has been dubbed “super Thursday” by Bank watchers because of the slew of information being made available simultaneously.
The Bank of England said it expected inflation to be back to its 2 per cent target in two years’ time.
Minutes of the bank’s monthly meeting showed “some members” saw a risk the inflation could pick up more strongly than the central forecast.
Governor Mark Carney had signaled recently that the Bank of England is “moving closer” to a rate increase as Britain’s economic growth remains among the fastest among advanced economies.
However, Bank governor Mark Carney said a rise was “drawing closer”.
He said the economic recovery was being driven by greater employment and higher wages, dismissing any suggestion it was being built on household credit. The Bank of England’s economists recent found that American swap rates were responsible for a number of movements in UK mortgage rates. Some forecast-beating data in the United States has backed views that the Fed will raise rates in September, rather than December, although the majority of investors remain positioned for the latter.
“Rates will eventually have to rise and when they do, it should be done slowly and steadily”.
According to the BoE, around three quarters of the deviation of inflation from its 2 per cent target reflects “unusually low” contributions from energy, food, and other imported goods prices.
“The markets can rest assured there won’t be any rate hike at this meeting and in the past we would not know how the MPC had voted for another two weeks, but going forward those minutes and voting patterns will be released along with the decision”.
“The initial reaction from markets has been a sell-off in the pound driven by the suspicion that the Bank’s cautious outlook means that first rate rise has been pushed back to at least early next year”.
The Bank of England has kept interest rates at a record low of 0.5% since March 2009 and markets are on tenterhooks about when they will be hiked.
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Few economists think the BoE is likely to move before the Federal Reserve, which is expected to raise rates this year, in large part because it would further push up the value of sterling.
