Bank of England governor Mark Carney last night dropped another strong hint that markets could be underestimating the likelihood of a 2015 interest rate hike.
“In the current circumstances there is no need to wait to raise rates because of a risk management approach and run the risk of inflation overshooting target,” he said in a speech at Lincoln Cathedral to mark the 800th anniversary of Magna Carta.
“In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year,” he said.
The first move toward a rate hike could begin as early as next month.
The Bank’s policymakers are set to be at loggerheads over whether to keep rates on hold at 0.5 per cent, say City analysts.
The nine-strong monetary policy committee (MPC) has remained united in their no-change vote since the start of the year, but stronger wage growth and comments from rate-setters this week have indicated that a 2015 rate rise is not improbable.
The MPC’s David Miles said this week that the Bank may raise rates before the US Federal Reserve does, while the Bank’s governor Mark Carney said on Tuesday that the time for a rate hike was “moving closer”.
The so-called Super Thursday meeting on 6 August will publish the outcome, the minutes and the quarterly inflation report at the same time – with analysts expecting a split vote.
“Members of the MPC usually wait until the inflation report is out [before changing their vote] so that they can explain their thinking better,” said Vicky Redwood from Capital Economics.
Redwood, Philip Shaw at Investec and JP Morgan’s Allan Monks all predict up to three MPC members will change their vote. Economists are broadly predicting a rate hike in the first half of next year, but say the possibility of a late 2015 hike is rising.
Martin Weale and Ian McCafferty – who both voted for higher rates in the second half of 2014 – are predicted to change their votes.
Miles and Ben Broadbent, who voted against extending quantitative easing in 2012, are other contenders.
Carney himself could change his vote, according to Redwood – a move that would certainly encourage others to follow suit.