News Column

Bank of England policy-makers likely to be divided about increasing interest rates

July 11, 2014

THE Bank of England has held interest rates at record lows but the pace of Britain's recovery looks likely to divide its policymakers soon over when to start weaning the economy off its support.

The Bank's Monetary Policy Committee (MPC), headed by Governor Mark Carney, kept its benchmark interest rate at 0.5 per cent, its level since the worst of the financial crisis more than five years ago, and made no statement.

However, some BoE policymakers are expected to begin casting votes in the coming months for a first rate hike since 2007 with the BoE broadly expected to raise rates either at the end of this year or in early 2015.

There was little market reaction to the latest decision but Philip Shaw, economist at Investec, said: "However, we suspect that this will be the last MPC meeting over which markets will remain so relaxed,

"August will herald the publication of the BoE's Quarterly Inflation Report and an updated set of forecasts, which might well act as a catalyst for the more hawkish members of the committee to contemplate voting for a tightening."

Separately, BoE deputy governor Andrew Bailey warned a mountain of accumulating fines for banks that have broken the rules is making it harder for regulators to work out how much capital lenders need to hold to be safe.

Mr Bailey, speaking yesterday, said fines for Libor rigging and emerging allegations regarding the manipulation of the foreign exchange market were a concern.

He said: "This is a considerable dent to rebuilding bank capital."

Mr Bailey, who also heads the BoE's Prudential Regulation Authority, said regulators are having to consider any potential fines when stress testing banks.

According to Mr Bailey the BoE is working closely with the Financial Conduct Authority (FCA), which is probing the foreign currency allegations, to see what fines generally could be in the pipeline as well as keeping an eye on developments abroad.

He said: "We have to read the direction of travel of other law enforcement authorities, particularly in the US."

In its annual performance account, published yesterday along with its annual report, the FCA said it is expecting to receive a rising number of requests for help from its overseas peers as part of "unprecedented" global cooperation in the investigation into the foreign exchange market. It has received 52 requests already in this financial year.

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Source: Herald, The (Scotland)

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