The Bank of England appeared to keep a May interest rate rise on the table as it announced it is holding the rate at 0.5 per cent for now.
The monetary policy committee voted seven to two to hold the rate this month, which was widely expected. As ever though, the devil was in the detail of the commentary which accompanied the decision.
‘Recent data releases are broadly consistent with the MPC’s view of the medium-term outlook as set out in the February Report,’ the Bank stated. ‘The prospects for global GDP growth remain strong, and financial conditions continue to be accommodative, with little persistent effect from the recent financial market volatility.’
Bank chief Mark Carney and his colleagues decided to hold rates at 0.5% today.
‘As in February, the best collective judgement of the MPC remains that, given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon,’ the Bank added.
In simpler terms, the Bank said today that everything is on track for a gradual edging up of rates over the coming year or two.
It did give itself some wiggle room though by mentioning the ongoing Brexit saga.
‘Developments regarding the United Kingdom’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,’ the Bank said.
The pound rose to the brink of $1.42 in the run-up to the announcement but then slipped back to sit flat for the session at $1.412.
The fact that two of the nine voting member wanted a rise now gives further weight to the argument May will be the time, as Ben Brettell, senior economist at Hargreaves Lansdown explains.
‘As expected, the Bank of England left interest rates unchanged today at 0.5 per cent. But what wasn’t expected was two committee members breaking consensus and voting for an immediate rise to 0.75 per cent. Ian McCafferty and Michael Saunders are worried that inaction now will mean rates will need to rise faster and further in future.’
Home owners on variable rate mortgages are likely to see their rate going up in May.
‘The Bank faces a delicate balancing act,’ he continued. ‘Inflation seems to be falling back towards the target of 2 per cent, as the effect of the weaker pound starts to filter out of the calculation. But a pick-up in wage growth points to an erosion of slack in the labour market.
‘This raises the prospect that a wage-price spiral could push inflation back up in future. Throw in a hefty dose of Brexit-related uncertainty and it’s easy to see why the committee is divided at present.’
In the view of Ben Edwards, manager of the BlackRock UK Corporate Bond Fund and Sterling Strategic Bond Fund, a May rise is close to nailed on now.
‘With today’s seven-two decision to keep the UK Bank Rate unchanged, the MPC’s focus on increasing wages and strong global growth all but nails on a hike at the May meeting,’ he said.
‘However, its brushing over some of the weaker hard data since the November meeting, and recent undershoot of its own inflation projections, suggest this may be the summer hike brought forward rather than a significant chance of additional hikes.’