Two years of record low rates

Julian Harris
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INTEREST rates will stay at half a per cent for the 24th month in a row, the Bank of England announced yesterday.

Analysts were unsurprised by the decision to keep rates at a record low, but expect the meeting’s minutes, published on 23 February, to reveal a fractious and increasingly hawkish feel to the committee.

“The Bank’s decision likely followed an intense, heated debate and could well have been the result of a very close vote,” said Howard Archer of IHS Global Insight.

“Given the difficult inflation environment we suspect there was a considerable debate at the meeting over whether or not to raise rates,” echoed Investec economist Philip Shaw.

Andrew Sentance and Martin Weale may have been joined by another colleague voting for a quarter point increase in rates, suggested Alan Clarke of BNP Paribas. “Given the worse news on inflation we would not be surprised if there was an additional dissenter,” Clarke said.

“We expect rates to rise soon and rise further than markets price in,” said Michael Saunders of Citigroup.

The Bank’s inflation report, published next Wednesday, will provide new evidence on how seriously it considers the threat of lingering price inflation, as well as the fragility, or strength, of the British economy.

“We expect an upward revision to the inflation projection, particularly at the two year ahead horizon,” Clarke said. “At the very least that is likely to show that the committee is moving closer to a rate hike.”