Minutes from the Bank of England’s June Monetary Policy Committee (MCP) meeting show that members voted 9 to 0 in favour of leaving interest rates as they are, at the historic low of 0.5 per cent, but suggest that a rate increase is increasingly likely by the end of the year.
The vote was unanimous on rates and on leaving quantitative easing unchanged at £375bn but members expressed surprise that there was little expectation for a rate rise before Christmas.
At the time of the meetings, held on June 4 and 5, markets were pricing in a 15 per cent chance of a rise in the rate before the end of the year but since then, investor’s views have changed.
The Bank’s Governor, Mark Carney hinted at an earlier rise in his speech at Mansion House last week, which sent markets into a flurry of activity and sterling to a five-year high.
According to the minutes, for some members the policy decision had become “more balanced’ in the last couple of months than earlier in the year but, in terms of the immediate policy decision, 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 could be warranted.
By slack, policymakers mean unemployment and other factors and one MPC member, Martin Weale, who many believe will be the first to vote for a rise, has indicated that, for him, unemployment must come down to 5 per cent before he would consider raising the rate.
In a speech to the CBI in Northern Ireland this week, Mr Weale added that even when rates do start to rise, the Bank would be providing a lot of support for the economy.