For the third consecutive month, the Bank of England’s Monetary Policy Committee (MPC) voted 7 to 2 to leave interest rates at their record low levels. The same two hawks, Martin Weale and Ian McCafferty, said rates should increase from 0.5% to 0.75%.
According to the minutes of November’s MPC meeting published on Tuesday, the committee had a “material spread of views” regarding the outlook for inflation.
The minutes stated that for the majority of members, the medium-term inflation outlook “justified maintaining the current stance of monetary policy.”
With recent data pointing to a slowdown in the UK’s property market and worrying figures coming out of the Eurozone, markets had speculated that Mr. Weale and Mr. McCafferty might actually decide to agree with their colleagues.
While the doves are concerned that growth will falter and inflation will stay below the BoE’s target for much longer than expected, the hawks fear that a prolonged period of low interest rates is fueling high inflation for later.
Ian McCafferty (left) and Martin Weale say interest rates should start rising gradually now, rather than abruptly later on.
According to the minutes:
“Below-target inflation was judged to be partly the consequence of a margin of spare capacity bearing down on domestic costs and prices.”
“A prolonged period in which inflation was below the target created at least the possibility that medium-term expectations of inflation would begin to drift downwards. This had the potential to lengthen the period for which inflation itself would remain below 2%.”
Inflation is still well below the Bank of England’s target of 2%. In October, the Consumer Price Index rose by 1.3% (annualized) compared to 1.2% in September.
The Bank of England warned last week that inflation is likely to slide to 1% during the next six months.
MPC members voted as follows in November:
No change: Mark Carney (Governor of the BoE), Ben Broadbent, Jon Cunliffe, Nemat Shafik, Kristin Forbes, Andrew Haldane and David Miles.
Raise rates: Ian McCafferty and Martin Weale.
MPC members voted unanimously to leave the buying of government bonds (quantitative easing) unchanged.
