Pound rises as Bank of England policymakers vote 7-2 to hold interest rates, but hint at a May hike (GBP USD EUR)
The Bank of England’s monetary policy committee (MPC) has voted to hold interest rates at 0.5 per cent, but has hinted a hike may be on the horizon.
Policymakers agreed 7-2 to keep rates steady, saying that Brexit developments and the reaction of households, businesses and asset prices to these developments “remain the most significant influence on, and source of uncertainty about, the economic outlook”.
The pound rose on the news, up 0.29 per cent against the dollar and up 0.35 per cent against the euro.
Though the Committee must be careful in such “exceptional” circumstances, making sure monetary policy supports jobs and economic activity, it today said that the “steady absorption of slack” means it should no longer accommodate an extended period of above-target inflation.
Read more: Mark Carney’s Bank of England monetary policy committee must keeps its eye on an interest rate hike in May
Ian McCafferty and Michael Saunders dissented in favour of a 0.25 per cent rate hike today.
Back in February, MPC members Jan Vlieghe and Ian McCafferty hinted that rate hikes were coming, despite Vlieghe often being seen as one of the more dovish officials.
In the Committee’s meeting that month, its Inflation Report had predicted inflation would fall from three per cent to 2.9 per cent.
Today, the MPC noted than inflation had in fact fallen closer to the two per cent target, at 2.7 per cent.
It added that an “ongoing tightening of monetary policy” was appropriate to return inflation back to its target, but that this was not necessary at this point in time.
“The May forecast round would enable the Committee to undertake a fuller assessment of the underlying momentum in the economy, the degree of slack remaining and the extent of domestic inflationary pressures,” the MPC’s minutes stated.
Read more: Shadow MPC: The Bank of England should hold interest rates amid hesitantly positive economic data
In the February MPC meeting, the Bank again held the interest rate at 0.5 per cent but said monetary policy will “need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated”.
But a slew of indeterminate economic data has since put the dampers on an imminent rate rise. There was some hope earlier this week as labour market data showed unemployment edging down and a modest strengthening in wage growth.
The MPC also voted unanimously to maintain the stock of non-financial investment grade corporate bond purchases, financed by issuance of central bank reserves, at £10bn, and the stock of UK government bond purchases at £435bn.
Read more: Bank of England chief economist Andy Haldane says “no rush” for interest rate rise