BoE Policymakers Unanimous On Rate; Divided Over Future Action

(RTTNews) - Although policymakers of the Bank of England unanimously voted to keep the key interest rate at a historic low for the second time, they were divided over future moves, minutes of the meeting revealed Wednesday.

All nine committee members agreed that it was appropriate to leave the stance of monetary policy unchanged at the meeting held on February 4 and 5. Since January's meeting, Ian McCafferty and Martin Weale dropped their call for a rate hike.

But the minutes showed that for one member, the next change in the stance of monetary policy was roughly as likely to be a loosening as a tightening.

For two members, there could well be a case for an increase in the rate later this year. It suggests that the decision is unlikely to be unanimous at the coming meetings.

The size of the quantitative easing programme was also maintained at GBP 375 billion. The minutes revealed that policymakers left open the options like expansion of quantitative easing or cutting interest rate towards zero, if downside risks to underlying inflation pressure materialize.

Inflation eased to a record low 0.3 percent in January on falling motor fuel and food prices. BoE Governor Mark Carney earlier said inflation was expected to fall further in the near term, and to temporarily turn negative as falls in energy prices continue to be passed through.

Reductions in the interest rate to below 0.5 percent were less likely to have undesirable effects on the supply of credit to the U.K. economy than previously judged by the MPC, it said.

All members of the committee thought it was likely that the interest rate would rise over the next three years.

Were the upside risks to underlying inflationary pressure to materialize, the bank said it would be appropriate for the interest rate to increase more quickly than embodied in current market yields.

IHS Global Insight's Chief UK Economist Howard Archer said he remains firmly of the view that the next move in interest rates will be a hike.

Archer added that he certainly would not rule out a hike to 0.75 percent before the end of 2015, although a move around February 2016 currently looks most likely.

According to the MPC, wages increased more than it estimated over the past three months. Wage growth is expected to recover gradually to around 4 percent over the next two years.

Data from the Office for National Statistics today showed that average earnings rose 2.1 percent annually, more than the 1.7 percent consensus estimate.

The Agents' summary of business conditions published by the BoE today showed that employment intentions had eased slightly for manufacturing and business services firms, but were consistent with modest headcount growth overall.