No rate rise in sight for King and his doves

Julian Harris
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TWO thirds of the Bank of England’s monetary policy committee (MPC) still oppose moves to normalise interest rates, despite rising price pressures.

The Bank expects inflation in the coming months to exceed its February predictions, it said yesterday.

“There remained a significant risk that inflation would exceed five per cent,” the MPC’s minutes revealed.

However, voting at the Bank’s April meeting showed no change from the previous two months, and analysts see little prospect of the MPC changing its dovish approach in the near term.

“We no longer expect a 0.25 per cent hike in May and instead forecast the first rate increase to be in August,” Barclays Capital responded.

“Crucially, there is no phrase in the MPC’s minutes which suggests members are awaiting the May Inflation Report meeting as a trigger to vote for a hike,” noted Citigroup’s Michael Saunders.

“The absence of any such phrase this time reinforces the likelihood that the MPC will probably not hike in May unless new upside risks to growth or inflation emerge.”

Only three of the nine-member panel voted for a rise in rates: Andrew Sentance again favouring a 0.5 per cent hike, and Martin Weale and Spencer Dale both voting for a 0.25 per cent tightening.

Weale and Spencer “regarded the matter as finely balanced… given the weakness of the real economy and the uncertainty facing the outlook,” the minutes said.

“Clearly Dale and Weale are closer to those voting for no change than they are to Sentance on the basis of these minutes,” commented Sam Hill of RBC Capital Markets.

May’s meeting marks the end of arch-hawk Andrew Sentance’s term on the MPC. Sentance will be replaced by Goldman Sachs economist Ben Broadbent.

Chief dove Adam Posen continued to vote for more quantitative easing.