Minutes from the latest meeting of the Bank’s monetary policy committee (MPC) raise the prospect of rates being lifted sooner than late 2016 – the point at which its forecasts had suggested a hike would be feasible.
New governor Mark Carney has introduced rules to hold rates at their historic lows until unemployment falls to at least seven per cent – but that time may come earlier than the Bank had expected.
“The recent reduction in the unemployment rate indicated that slack in the economy was, as anticipated, being eroded as activity picked up. If anything, that was occurring a little faster than envisaged at the time of the August Inflation Report,” the minutes for the October meeting said.
“It was encouraging that private sector hourly productivity had grown at close to its trend rate in the second quarter following two years of falling productivity,” it added.
The nine-man MPC agreed unanimously to hold its policy of 0.5 per cent interest rates, with its asset-purchasing programme – known as quantitative easing – held at £375bn.
Yet wider economic conditions paint a hopeful picture, it said: “The news on the month had continued to suggest a robust recovery in activity in the UK. Monetary stimulus remained considerable and confidence appeared to be rising.”
Senior officials at the Bank believe GDP growth in the UK will measure around 0.7 per cent “or a little higher” for each quarter of the second half of the year – stronger than had been forecast in August’s Inflation Report.
Yet the committee also has doubts over progress in rebalancing the UK towards investment and exports. Revision to the UK’s GDP data for the second quarter of the year “suggested less progress in rebalancing than did the previous release, with net trade making no contribution to growth”.