'Pound rallies after Bank of England is split on interest rates - as it happened' diff viewer (6/7)

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Bank of England leaves interest rates on hold, but chief economist pushes for a rise - business live	Bank of England leaves interest rates on hold, but chief economist pushes for a rise - business live
2018-06-21 12:20:06 UTC	2018-06-21 12:55:06 UTC (35 minutes later)
	A new Brexit crisis could derail the Bank of England from raising interest rates in August, despite Haldane’s hawkish conversion.
	Silvia Dall’Angelo, senior economist at Hermes Investment Management, explains:
	The Bank seems determined to deliver one more hike in the second half of the year, justified by a tight labour market and an economy now working close to potential.
	However, there are several reasons to err on the side of caution. In particular, recent hard data on industrial production and surveys on economic activity suggest that the prospects of a significant rebound in economic performance are uncertain following a weak Q1. Moreover, risks of a disruptive Brexit event down the road are still high.
	Negotiations have stalled in recent months reflecting unresolved divisions within the UK Cabinet, and the upcoming EU council at the end of June is unlikely to deliver any progress, as other issues (not least international trade tensions) are now topping the EU leaders’ agenda.
City economist Sam Tombs of Pantheon has spotted that the pound started to rally just before the Bank’s decision was published.	City economist Sam Tombs of Pantheon has spotted that the pound started to rally just before the Bank’s decision was published.
Sterling was trading at $1.310 at 11.50am, but had snuck over $1.313 by 11.59am:	Sterling was trading at $1.310 at 11.50am, but had snuck over $1.313 by 11.59am:
That's quite a suspicious appreciation of sterling prior to the MPC's 12pm decision, if you ask me. Was Haldane's vote switch leaked? pic.twitter.com/h4TZCBpKil	That's quite a suspicious appreciation of sterling prior to the MPC's 12pm decision, if you ask me. Was Haldane's vote switch leaked? pic.twitter.com/h4TZCBpKil
The Bank actually held its meeting yesterday, and keeps its decision tightly under wraps until the official announcement. But was it tight enough?...	The Bank actually held its meeting yesterday, and keeps its decision tightly under wraps until the official announcement. But was it tight enough?...
Another development: the Bank of England has changed its guidance about when it might start unwinding its quantitative easing (QE) stimulus programme.	Another development: the Bank of England has changed its guidance about when it might start unwinding its quantitative easing (QE) stimulus programme.
The Bank currently holds £435bn of bonds bought through QE using newly-created electronic money.	The Bank currently holds £435bn of bonds bought through QE using newly-created electronic money.
It has now decided it could start to sell some of these bonds when interest rates have risen to 1.5% (compared to 0.5% today). It had previously aimed for 2%.	It has now decided it could start to sell some of these bonds when interest rates have risen to 1.5% (compared to 0.5% today). It had previously aimed for 2%.
Neil Wilson of Markets.com thinks this shows the Bank doesn’t expect rates to hit 2% for a long time.	Neil Wilson of Markets.com thinks this shows the Bank doesn’t expect rates to hit 2% for a long time.
A lower bar but whether 1.5% or 2% - neither are going to happen any time soon, so this is of marginal relevance to investors right now. It’s indeed probably an admission it doesn’t see rates hitting 2% for a very long time indeed, while 1.5% is a bit more achievable.”	A lower bar but whether 1.5% or 2% - neither are going to happen any time soon, so this is of marginal relevance to investors right now. It’s indeed probably an admission it doesn’t see rates hitting 2% for a very long time indeed, while 1.5% is a bit more achievable.”
Neil Birrell, Chief Investment Officer at Premier Asset Management, agrees:	Neil Birrell, Chief Investment Officer at Premier Asset Management, agrees:
Another significant change was in QE guidance; the bank won’t consider reducing the debt purchased until the rate reaches 1.5%, down from 2%. This suggests that they now think rates will have a lower peak this cycle than previously expected.	Another significant change was in QE guidance; the bank won’t consider reducing the debt purchased until the rate reaches 1.5%, down from 2%. This suggests that they now think rates will have a lower peak this cycle than previously expected.
“This is mixed news for markets. In the short term, it’s a positive for Sterling and we may see gilt yields rise modestly, but the outlook is still unclear, as is the message from the bank.”	“This is mixed news for markets. In the short term, it’s a positive for Sterling and we may see gilt yields rise modestly, but the outlook is still unclear, as is the message from the bank.”
Andy Haldane’s transformation to an interest rate hawk means there is more chance of an interest rate rise in August, says Craig Erlam of trading firm OANDA.	Andy Haldane’s transformation to an interest rate hawk means there is more chance of an interest rate rise in August, says Craig Erlam of trading firm OANDA.
Prior to today’s meeting, investors were unconvinced by the prospect of a rate hike in August but I think today’s release will change that. Sterling rallied above 1.32 against the dollar from just above 1.31 prior to the release which suggests people’s expectations for August are being quickly revised.	Prior to today’s meeting, investors were unconvinced by the prospect of a rate hike in August but I think today’s release will change that. Sterling rallied above 1.32 against the dollar from just above 1.31 prior to the release which suggests people’s expectations for August are being quickly revised.
While a hike in November makes more sense as there’ll be more clarity – hopefully – by then, I wouldn’t be surprised if they go in August given the criticism they endured for holding off in May.	While a hike in November makes more sense as there’ll be more clarity – hopefully – by then, I wouldn’t be surprised if they go in August given the criticism they endured for holding off in May.
The Bank’s official position is that it expects that “an ongoing tightening of monetary policy” will be appropriate over the next couple of years, if the economy performs as expected.	The Bank’s official position is that it expects that “an ongoing tightening of monetary policy” will be appropriate over the next couple of years, if the economy performs as expected.
Economics journalist Dharshini David points out that this isn’t a concrete promise to raise rates soon	Economics journalist Dharshini David points out that this isn’t a concrete promise to raise rates soon
While market's reading of 1 more MPC member voting for hike is that Aug rate rise more likely, BoE keeping options open, notably using exact same vague line ("an ongoing tightening of monetary policy over the forecast period would be appropriate" ) as last meeting	While market's reading of 1 more MPC member voting for hike is that Aug rate rise more likely, BoE keeping options open, notably using exact same vague line ("an ongoing tightening of monetary policy over the forecast period would be appropriate" ) as last meeting
Today’s 6-3 split is a surprise, says Ben Brettell, senior economist at Hargreaves Lansdown:	Today’s 6-3 split is a surprise, says Ben Brettell, senior economist at Hargreaves Lansdown:
But that doesn’t mean that interest rates will definitely rise in August, he adds:	But that doesn’t mean that interest rates will definitely rise in August, he adds:
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.	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.	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.
There is clearly a split at the Bank of England over the state of the British economy.	There is clearly a split at the Bank of England over the state of the British economy.
The minutes of today’s meeting show that six members believe the UK economy isn’t strong enough to handle higher interest rates, especially with the global economy looking shakier.	The minutes of today’s meeting show that six members believe the UK economy isn’t strong enough to handle higher interest rates, especially with the global economy looking shakier.
Those members are governor Mark Carney, deputy governors Ben Broadbent, Jon Cunliffe and Dave Ramsden, and external committee members Silvana Tenreyro and Gertjan Vlieghe.	Those members are governor Mark Carney, deputy governors Ben Broadbent, Jon Cunliffe and Dave Ramsden, and external committee members Silvana Tenreyro and Gertjan Vlieghe.
As the minutes put it:	As the minutes put it:
For the majority of members, an increase in Bank Rate at this meeting was not required. For these members, the news since the previous meeting had given them greater reassurance that the softness of activity in the first quarter had been largely temporary. In particular, indicators of household consumption had recovered strongly from their subdued levels at the time of the previous meeting.	For the majority of members, an increase in Bank Rate at this meeting was not required. For these members, the news since the previous meeting had given them greater reassurance that the softness of activity in the first quarter had been largely temporary. In particular, indicators of household consumption had recovered strongly from their subdued levels at the time of the previous meeting.
Set against that, the outlook for global growth had weakened somewhat, and global financial conditions had tightened, with some modest impact on UK bank funding and corporate credit spreads. Data on manufacturing output and goods exports in April had been weak, although business surveys had generally suggested steady underlying GDP growth. For these members, there was value in seeing how the data evolved from here, in order to learn more about the extent to which conditions were evolving in line with the May Inflation Report projections.	Set against that, the outlook for global growth had weakened somewhat, and global financial conditions had tightened, with some modest impact on UK bank funding and corporate credit spreads. Data on manufacturing output and goods exports in April had been weak, although business surveys had generally suggested steady underlying GDP growth. For these members, there was value in seeing how the data evolved from here, in order to learn more about the extent to which conditions were evolving in line with the May Inflation Report projections.
But chief economist Andy Haldane disagreed! Along with external members Ian McCafferty and Michael Saunders, Haldane argued that the economy was healthy, and that growth was bouncing back from the winter slowdown.	But chief economist Andy Haldane disagreed! Along with external members Ian McCafferty and Michael Saunders, Haldane argued that the economy was healthy, and that growth was bouncing back from the winter slowdown.
The minute say that this trio pushed for higher borrowing costs, to avoid a spike in inflation.	The minute say that this trio pushed for higher borrowing costs, to avoid a spike in inflation.
Three members favoured an immediate increase in Bank Rate. These members had a higher degree of confidence that the slowdown in Q1 was temporary or erratic and would largely be unwound.	Three members favoured an immediate increase in Bank Rate. These members had a higher degree of confidence that the slowdown in Q1 was temporary or erratic and would largely be unwound.
They felt that the economy was developing broadly in line with the May Inflation Report forecasts, but the most recent indicators of labour demand and pay settlements indicated some upside risks to the expected pickup in average weekly earnings and unit wage costs. These members also felt that the benefits of waiting for additional information were limited.	They felt that the economy was developing broadly in line with the May Inflation Report forecasts, but the most recent indicators of labour demand and pay settlements indicated some upside risks to the expected pickup in average weekly earnings and unit wage costs. These members also felt that the benefits of waiting for additional information were limited.
Rather, they judged that a modest tightening of monetary policy at this meeting could mitigate the risks of a more sustained period of above-target inflation that might ultimately necessitate a less gradual subsequent change in policy and hence a sharper adjustment in growth and employment.	Rather, they judged that a modest tightening of monetary policy at this meeting could mitigate the risks of a more sustained period of above-target inflation that might ultimately necessitate a less gradual subsequent change in policy and hence a sharper adjustment in growth and employment.