BoE minutes reveal rate hike debates at Threadneedle Street

Peter Spence
Follow Peter
The UK's interest-rate setting committee voted for no change in policy this month (Source: Getty)

The minutes of the Monetary Policy Committee's meeting of 7-8 May reveal that its members voted 9-0 for no change in policy, electing to hold interest rates at their historic lows and maintaining QE at £375bn.

Analysts had widely expected to see that the MPC had showed unanimity for unchanged policy at its latest meeting.

Central bank watchers comb through these minutes for signs of disunity on the Bank's interest-rate setting committee. Since the adoption of a new form of Forward Guidance in February, that committee will be looking for a reduction in the amount of spare capacity in the economy before it considers a rise in interest rates.

World First's Jeremy Cook notes that the minutes "hint at future dissent" as the Bank's release states that "for some members the monetary policy decision was becoming more balanced."

The most recent Inflation Report noted that most members believed the amount of slack in the UK's economy stood at one to 1.5 per cent of GDP, while today's release said that "there was considerable uncertainty around that central estimate ... and a range of views on the committee."

HSBC analysts said in a preview of the minutes with growth indicators picking up, and some evidence of stalling productivity in the first quarter of 2014, "the more hawkish MPC members may be voting for tightening soon", with split votes likely to occur as early as this summer. For now, all members agreed that "it would be necessary to see more evidence of slack reducing before an increase in bank rate would be warranted."

Cook says that for the moment, "the risks of a rate rise seem to outweigh the benefits", and World First maintains it view that rates will remain on hold until real wage increases are shown to be more persistent, which it sees happening in the second quarter of 2015.

The pound made a move higher against the dollar before the release, with the euro at fresh year to date low against the pound, leading some to believe that a split vote was expected.

Source: Yahoo! Finance