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BoE maintains interest rates at 0.5%; Two members vote for rise

BoE maintains interest rates at 0.5%; Two members vote for rise

The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.

The minutes reiterated that "given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy would be appropriate to return inflation sustainably to its target".

"With this being the last MPC meeting before the May meeting, any speeches MPC members are due to make in the coming weeks will be watched closely for hints over the timing of the next hike".

Carney has said interest rate policy will depend heavily on Brexit talks progressing smoothly and not derailing confidence.

The central bank, however, made clear it is ready to raise interest rates at its next meeting in May.

The dissent from two members, Ian McCafferty and Michael Saunders, to vote for a hike is in contrast to the February meeting, at which all seven members voted unanimously to hold rates.

The BoE raised rates for the first time in over a decade in November, reversing an emergency cut when the economy appeared to be going into shock after Britain's June 2016 Brexit vote.

Inflation is expected to ease further in the short term although to remain above the 2% target.

Two-year gilt yields, which are most sensitive to the short-term outlook for interest rates, also weakened after the BoE's announcement on Thursday. The unemployment rate remained low in the three months to January.

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'Business leaders will welcome the Bank of England's decision not to spring any surprises this month, but firms and households will be on tenterhooks for what comes in May.

Data showing a further recovery in pay growth was also seen as a sign that the BoE was on course to raise rates when it next revises its economic outlook in May.

Only a minority expected Saunders or McCafferty to vote for a rise.

However, Blackrock bond manager Ben Edwards said a May rate rise may be the summer hike brought forward rather than a significant chance of additional hikes.

One major stumbling block was removed this week when Prime Minister Theresa May agreed a transition deal with the European Union to leave trade relations between Britain and the bloc unchanged after Brexit in March next year until the end of 2020.

"Given the fact that economic data has not been altogether positive in the past month, this will likely underline the Committee's resolve to begin the slow process of normalising monetary policy in the face of still stubbornly high inflation, but very tepid growth", Metcalfe said.

But the BoE is likely to point to a sharp pick-up in wage growth to a two-and-a-half year high of 2.8 percent as cementing the case for a move in May.

On Thursday, the BoE said developments since then broadly backed up their view.

Minutes of the meetings are published after the rates decision has been announced.


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