Bank vote hints at interest rate rise in May

“The Bank of England has left the door open to raise UK interest rates in May after making no change this month, holding them steady at 0.5%.

Two members of the Bank’s nine-member Monetary Policy Committee – Ian McCafferty and Michael Saunders – backed an increase in rates to 0.75%.

That was a departure from the unanimous vote at the last MPC meeting in February.

In November, the Bank raised rates to 0.5%, the first increase for a decade.

The MPC said “ongoing tightening” was likely to be needed to return inflation back to the Bank’s 2% target.

On Tuesday, the Office for National Statistics said consumer price inflation was 2.7% in February, down from 3% the previous month and the lowest figure since July 2017.

Kallum Pickering at Berenberg said the March minutes “give the nod to market pricing for a May hike”.

UK interest rates

Alan Clarke at Scotiabank said he was “more and more confident” that the MPC would raise rates in May.

“Thereafter we expect a rate hike in November, but it’s not going to be plain sailing getting there,” he added.

However, Samuel Tombs at Pantheon Macroeconomics argued that the committee members would wait until August to raise interest rates again.

The National Institute of Economic and Social Research (NIESR) reaffirmed its call for a 0.25 percentage point rise every six months to bring the rate to 2% in 2020-21.

Muted growth

Official figures released on Wednesday showed that average earnings rose by 2.6% in the three months to January – the fastest pace since 2015.

On Wednesday, the government announced a 6.5% pay rise for many NHS workers over the next three years.

Higher wages could make it harder for the Bank to see inflation fall closer to its 2% target.

Muted economic growth is another complication. Last month, the Bank forecast growth of 1.8% for this year and 2019 – well below the UK’s historic average.

Thursday’s MPC minutes said the UK economy would suffer a “temporary” hit from the recent cold weather, suggesting growth may slow to 0.3% in the first quarter, down from 0.4% for the last three months of 2017.”

Source – BBC News