News Column

Clash looms over timing of interest rate rise

July 6, 2014

Dominic Jeff

THE first dissenting voices on the Bank of England's monetary policy committee (MPC) may this week start pushing for an early rise in interest rates.Recent meetings of the rate-setting panel have shown evidence of a growing difference in opinions, although the vote has remained unanimous in favour of maintaining the status quo since governor Mark Carney introduced his forward guidance policy last year.Since then the UK economy has picked up faster than most expected and a sharp fall in the unemployment rate has rendered the original guidance obsolete.Last week a series of purchasing managers' surveys showed that not only had strong growth been maintained, but surging forward orders suggested that the pace would accelerate in the second half of the year.Although no MPC member voted for an interest rate hike in June, the minutes of that meeting noted that "the relatively low probability attached to a bank rate increase this year implied by financial market prices was somewhat surprising".The minutes also observed that "the economy was starting to return to normal. Part of that normalisation would be a rise in bank rate at some point."For some members, the policy decision had become more balanced in the past couple of months than earlier in the year," the minutes added.Action from the MPC is not expected just yet but the debate among members is likely to be intense over how much faster the economy can grow without bringing about inflationary pressures.Howard Archer, chief UK economist at IHS Global Insight, said: "There is little doubt that the MPC will keep interest rates unchanged at 0.5 per cent at the conclusion of their July meeting on Thursday. But there is considerable doubt as to whether the Bank of England's first interest rate hike will occur in late 2014 or early 2015."Although a decision will be announced on Thursday, the City will have to wait two weeks for details of the discussions that took place.

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Source: Scotland on Sunday

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