7-2 BoE vote to hold Bank Rate


The chances of a May rise in interest rates have increased sharply after two members of the Bank of England's monetary policy committee voted for an immediate hike in borrowing costs.

"Our Monetary Policy Committee has voted by a majority of 7-2 to maintain Bank Rate at 0.50 percent", said a statement following a regular meeting.

Official figures this week showed inflation in the year to February fell - to an annual rate of 2.7 percent - though that's still above the bank's target of 2 percent.

Fed raised rates by 25 basis points to 1.75 per cent on Wednesday and forecast at least two more hikes for 2018, highlighting its growing confidence that tax cuts and government spending will boost the economy and inflation and spur more aggressive future tightening.

The British pound passed $1.42 this afternoon following the Bank of England's decision to keep interest rates on hold, yet with hints of a rise later this year.

Ian McCafferty and Michael Saunders argued that a "modest tightening. could mitigate the risks from a more sustained period of above-target inflation that might necessitate a more abrupt change in policy and hence a greater adjustment in growth and employment". The UK's unemployment rate has meanwhile dipped, reverting to the lowest level since 1975, after a brief rise.

On Thursday, the BoE said economic developments since then broadly backed up this view.

Inflation is expected to ease further in the short term although to remain above the 2 percent target. Two members voted for a rate rise this month and the Bank said nothing to dispel expectations that rates will rise in May. Real wage growth looks on course to creep back into positive territory in the coming months after average wage growth excluding bonus ticked up to 2.6% in January. The latest activity indicators suggest that the underlying pace of GDP growth in the first quarter of 2018 remains similar to that in the final quarter of 2017.

Shifts in risk-sentiment are most likely to influence "Aussie" trade next week, especially further developments regarding the USA stance on global trade and market concerns of a possible "trade war".

Michael Hewson, chief analyst at CMC Markets, said Wednesday's better than expected wages growth and unemployment data "shifted the calculus on a possible move on United Kingdom rates to the May meeting".

Regarding Brexit, the minutes said that "developments regarding the UK's withdrawal from the European Union - and, in particular, the reaction of households, businesses and asset prices to them - remain the most significant influence on, and source of uncertainty about, the economic outlook".

It said in pursuing its objective of a 2% inflation rate the "main challenges for the Committee had continued to be to assess the economic implications of the United Kingdom withdrawing from the European Union and to identify the appropriate policy response to that changing outlook, including to the substantial depreciation of sterling that had been associated with the decision".

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