- Bank of England holds interest rates at 0.5% in 6 to 3 vote
- But extra member calls for a rise – increasing forecasts for an August hike
- Bank’s chief economist Andy Haldane was the man who joined the hawks
Expectations that the Bank of England could raise interest rates this summer were stoked today, despite the base rate remaining on hold at 0.5 per cent.
The Bank’s ratesetters voted 6 to 3 to hold rates rather than the expected 7 to 2 result, as the Bank’s chief economist Andy Haldane joined those calling for an immediate rise.
Today’s result lifted the pound and is likely to see borrowers face higher costs on new mortgages, as lenders hike prices in anticipation of a base rate rise to 0.75 per cent in August – when a rate decision and quarterly inflation report are due.
Savers will be cheered by the hope of rates rising, however, almost a decade after base rate was cut to 0.5 per cent, as an emergency measure during the financial crisis.
The Bank’s chief economist Andy Haldane joined those calling for an immediate rise
However, an August rise is by no means a done deal and economists are split on whether rates will even go up this year.
Mr Haldane is seen as an influential member of the Monetary Policy Committee, which sets interest rates in order to target inflation at 2 per cent support the UK economy.
His vote for a rise was added to those of Ian McCafferty and Michael Saunders and that decision was the first time that he has voted against the majority since he became an MPC in 2014.
Today’s vote was also the biggest MPC split vote in a year.
Interest rates had been widely expected to rise in May throughout most of spring, however, a deterioration in economic data, bigger-than-expected-fall in inflation, and worries over the health of the High Street and British consumer put paid to that.
It now remains to be seen whether support for an August rate rise will build on today’s vote, or dissipate as decision day approaches.
Bank of England Governor Mark Carney leads the rate-setting committee that held the base rate steady at 0.5% again today
Ben Brettell, senior economist at Hargreaves Lansdown, said: ‘Today’s decision was always expected to be one of no change, with even those who think a rate rise is coming focusing on the Bank’s August policy meeting as the most likely candidate for an upward move.
‘But there was a small element of surprise in the voting, with the Bank’s chief economist Andy Haldane joining Michael Saunders and perma-hawk Ian McCafferty in calling for an immediate rate rise.
‘Economists had expected a 7-2 split, but in the event a forecast uptick in inflation was enough to split the committee 6-3.
‘Sterling jumped on the news, gaining almost a cent against the dollar as traders factored in a bigger chance of a move in August.
‘But on balance I still think we might not see a rate rise for the rest of the year – policymakers will at the very least want confirmation that the weak first-quarter growth figure was just a blip before raising borrowing costs.’
The Bank’s statement alongside the decision highlighted the views of the three MPC members calling for a rise.
It said: ‘These members had a higher degree of confidence that the slowdown in the first quarter was temporary or erratic and would largely be unwound.’
The pound rose against the dollar, up 0.56 per cent up at $1.325 and by 0.37 per cent against the euro to €1.143, by 1.45pm.
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