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BoE Policymakers Unanimous On Rates; Hints Early Rate Hike Possibility

June 18, 2014

LONDON (Alliance News) - Bank of England policymakers unanimously decided to leave the key interest rates unchanged in June and once again hinted at a possibility of a rate hike as early as this year.

At the monetary policy meeting held on June 4 and 5, all nine members of the Monetary Policy Committee voted to retain the record low 0.50% interest rate and quantitative easing at GBP 375 billion, the minutes showed Wednesday.

All members agreed that, in the absence of other inflationary pressures, it would be necessary to see more evidence of slack being absorbed before an increase in Bank Rate would be warranted.

If policy were tightened prematurely, however, that could be associated with considerable costs in terms of lost output, members noted.

At the Mansion house speech last week, Governor Mark Carney said the interest rates in the UK could rise sooner than investors expect. He also noted that policymakers have no pre-set course and the ultimate decision will be data-driven.

The economy could maintain its growth and slack would be absorbed more quickly than had previously been expected, the minutes said. In that context, "the relatively low probability attached to a bank rate increase this year implied by some financial market prices was somewhat surprising," it said.

The case for raising Bank Rate gradually and cautiously was reinforced by uncertainty over its likely impact on the economy, the minutes said.

The precise timing of the rate hike would depend on the outlook for inflation. That, in turn, would depend on the data flow, and in particular what that implied for the degree of slack, the prospects for its absorption, and the broader outlook for wages, the minutes showed.

The risk of 2014 hike is clearly growing, Samuel Tombs, a senior UK economist at Capital Economics, said.

However, the economist said, for now, further downside surprises on inflation and some cooling of the housing market will delay a rate hike until early 2015 and mean that rates rise only gradually thereafter.

IHS Global Insight's Chief UK Economist Howard Archer said he is increasingly leaning towards the view that the first interest rate hike from 0.50% to 0.75% will come in November or December 2014, although it is far from a done deal.

The Agents' summary of business conditions showed that capacity utilization was marginally above normal overall, although significant spare capacity remained in some parts of the economy.

In a speech in Belfast, Northern Ireland, policymaker Martin Weale said even after interest rates start to rise, monetary policy will still be providing considerable support for the economy.

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Source: Alliance News

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