Pound jumps as Bank of England rate-setters vote unanimously to keep rates on hold in July

Jessica Morris
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Governor Mark Carney has hinted rates could rise ahead of expectations (Source: Getty)

The pound rose 0.45 per cent against the dollar to $1.5624 this morning after members of the Bank of England's monetary policy committee (MPC) struck a more hawkish tone in minutes of a meeting published today.

While all nine members voted to hold interest rates at a record low 0.5 per cent at its meeting ending 8 July, "a number" of rate-setters said rising inflationary pressures meant they were moving closer towards reversing this.

It marks a slight change of language from June's meeting when two members said the rate decision was "finely balanced". While this month's minutes didn't specify how many rate-setters now held this view, they said it was "becoming more finely balanced" for "a number of members" in the absence of Greece.

"For a number of members, the balance of risks to medium-term inflation relative to the two per cent target was becoming more skewed to the upside at the current level of bank rate," the minutes said.

Read more: The Bank of England could – and should– have raised UK interest rates much sooner

"For these members, the uncertainty caused by recent developments in Greece was a very material factor in their decisions: absent that uncertainty, the decision between holding bank rate at its current level versus a small increase was becoming more finely balanced."

"For most members, even before accounting for the recent increase in uncertainty in the external environment, the current stance of monetary policy remained appropriate to balance the risks of inflation around the target in the medium term. For all members, the policy decision this month was clear cut."

Economists increasingly expect unanimity to end at its meeting in August with MPC members Martin Weale, Ian McCafferty and David Miles singled out as possible dissenters.

"This will highly likely have been the last time that unanimity prevailed for keeping interest rates at 0.5 per cent," Howard Archer, chief economist at IHS, said.

Read more: Why the BoE's next interest rate move should be down

"There seems a strong likelihood that at least two MPC members will vote for an interest rate hike in August, and it could conceivably be three."

Bank of England governor Mark Carney has recently warned the decision about when to hike interest rates is likely to "come into sharper relief around the turn of this year". This has led some analysts to suggest interest rates could rise before the end of this year.

"Much will also depending on the external environment, though in this respect the easing of tension surrounding ‘Grexit’ – assuming no re-escalation of the crisis - suggests policymakers may be more hawkish at the next meeting," Chris Williamson, chief economist at Markit, said.

"The chances of rates rising toward the end of the year are therefore rising, with November widely seen as a strong possibility as the bank will have updated its forecasts."

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