Central Banks

Bank of England minutes show edge towards hike

Bank of England policymakers voted unanimously to keep interest rates on hold earlier this month but there were signs that more of them were edging closer to pushing for a first hike since before the financial crisis.

Minutes of the Monetary Policy Committee's meeting, which ended on July 8, showed its members voted 9-0 to leave rates at their record low of 0.5 percent.

"For all MPC members, the policy decision this month was clear cut," according to the minutes which were published on Wednesday.

However, for "a number" of policymakers, the risks of inflation rising above the Bank's 2 percent target was rising and it was the "very material factor" of Greece's debt stand-off that influenced their vote to keep rates on hold.

"Absent that uncertainty, the decision between holding Bank rate at its current level versus a small increase was becoming more finely balanced," the minutes said.

At its previous meeting, in June, the BoE said that for two policymakers, the decision rates was already finely balanced.

The July minutes showed that for most members, keeping rates on hold would still have been appropriate even without the problems in Greece and the volatility in China's financial markets.

The vote by the MPC also took place on the day that British finance minister George Osborne announced his post-election tax and spending plans.

The BoE said the committee had been briefed by the finance ministry that the new budget plans were unlikely to result in more of a drag on growth than the Bank had previously assumed.

All 17 economists who took part in a Reuters poll had predicted that the MPC would remain united in voting for no change in rates in July.

A man sits on a bench outside the Bank of England in London.
Ben Stansall | AFP | Getty Images

Nonetheless, the unity among the BoE's rate-setters is expected to end in August when the Bank publishes a quarterly update of its forecasts for Britain's economy.

A stronger-than-expected acceleration of earnings growth, revealed in data published last week, may prove to be the final evidence for MPC members Martin Weale and Ian McCafferty that the economic recovery can withstand a rate hike.

Fellow MPC member David Miles, who was once one of the strongest advocates for providing more stimulus for the British economy, said last week that holding off on a rate hike for too long would be "a bad mistake".

BoE Governor Mark Carney has sounded a less urgent note, saying that the timing of a first increase in Bank Rate since before the financial crisis was likely to "come into sharper relief around the turn of this year".

The minutes of the July meeting of the Committee showed its members were divided on how much of a risk the pickup in wages posed to the Bank's inflation target.

"In any event, all members agreed that these domestic developments needed to be set against those in the external environment," the minutes said.

The minutes published on Wednesday also showed the nine members of the MPC all voted to keep the Bank's stockpile of government bonds, amassed as a further stimulus for the British economy, unchanged at 375 billion pounds.