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Monetary policy committee voted 7 – 2 to hold interest rates Monetary policy committee voted 7-2 to hold interest rates
(about 4 hours later)
Two members of the Bank of England's interest rate setting committee maintained a hawkish stance on interest rates this month and voted for a second time to raise rates.Two members of the Bank of England's interest rate setting committee maintained a hawkish stance on interest rates this month and voted for a second time to raise rates.
The nine-strong monetary policy committee (MPC), which meets every month to set the central bank's base rates, voted at their September gathering to maintain the lowest rates in British history at 0.5%, according to minutes of the gathering.The nine-strong monetary policy committee (MPC), which meets every month to set the central bank's base rates, voted at their September gathering to maintain the lowest rates in British history at 0.5%, according to minutes of the gathering.
Martin Weale and Ian McCafferty, both external members of the committee, pushed for a 50% jump to 0.75% in response to lower unemployment and a tightening labour market. Martin Weale and Ian McCafferty, both external members of the committee, pushed for a hike to 0.75% in response to lower unemployment and a tightening labour market.
But the remaining seven, including the Bank of England governor Mark Carney, agreed that the failure of wages to rise above the rate of inflation meant there was little domestic pressure on prices over the next couple of years.But the remaining seven, including the Bank of England governor Mark Carney, agreed that the failure of wages to rise above the rate of inflation meant there was little domestic pressure on prices over the next couple of years.
Analysts said recent data on pay and inflation showed the UK recovery remained fragile. Ben Brettell, senior economist at financial advisers Hargreaves Lansdown, said: "In the absence of inflationary pressures, leaving rates on hold is a fairly straightforward decision, and it is no surprise that mpc members McCafferty and Weale remain alone in calling for an increase to 0.75%.Analysts said recent data on pay and inflation showed the UK recovery remained fragile. Ben Brettell, senior economist at financial advisers Hargreaves Lansdown, said: "In the absence of inflationary pressures, leaving rates on hold is a fairly straightforward decision, and it is no surprise that mpc members McCafferty and Weale remain alone in calling for an increase to 0.75%.
"With CPI inflation at a five-year low, and set to remain significantly below target well into 2015, the first move won't come until after next year's election.""With CPI inflation at a five-year low, and set to remain significantly below target well into 2015, the first move won't come until after next year's election."
Average annual pay rose by only 0.7% in the three months to July excluding bonuses while inflation in the same month stood at 1.6% - and fell further to 1.5% in August. Average annual pay rose by only 0.7% in the three months to July excluding bonuses while inflation in the same month stood at 1.6% – and fell further to 1.5% in August.
Chris Williamson, chief economist at the financial data provider Markit, said the majority of MPC members will want to see pay rising in real terms before deciding that higher interest rates are justified. "While it seems possible that more will join the two MPC dissenters in coming months if wage growth picks up, it looks a long way to go before a majority on the MPC vote to raise interest rates," he said.Chris Williamson, chief economist at the financial data provider Markit, said the majority of MPC members will want to see pay rising in real terms before deciding that higher interest rates are justified. "While it seems possible that more will join the two MPC dissenters in coming months if wage growth picks up, it looks a long way to go before a majority on the MPC vote to raise interest rates," he said.
The minutes reported: "For most members, there remained insufficient evidence of prospective inflationary pressures to justify an immediate increase in bank rate. These members put forward a number of arguments, on which they each placed different weights. There were more indications, from business surveys, from export indicators and from the housing market that growth was likely to ease a little; and the downside news in the euro area had increased the risks to the durability of the domestic expansion in the medium term.The minutes reported: "For most members, there remained insufficient evidence of prospective inflationary pressures to justify an immediate increase in bank rate. These members put forward a number of arguments, on which they each placed different weights. There were more indications, from business surveys, from export indicators and from the housing market that growth was likely to ease a little; and the downside news in the euro area had increased the risks to the durability of the domestic expansion in the medium term.
"Inflation was below the target and there were few signs of inflationary pressures: import prices were falling, and the depressing impact on prices of past increases in the exchange rate had yet fully to feed through."Inflation was below the target and there were few signs of inflationary pressures: import prices were falling, and the depressing impact on prices of past increases in the exchange rate had yet fully to feed through.
"More significantly, unit labour costs were currently growing at a rate well below that consistent with meeting the inflation target in the medium term," it said."More significantly, unit labour costs were currently growing at a rate well below that consistent with meeting the inflation target in the medium term," it said.
The committee also discussed risks to the global economy that could have an impact on the UK's recovery, but while the disputes in Ukraine and the Middle East were regarded as a threat to trade and growth, it noted that markets were unusually calm.The committee also discussed risks to the global economy that could have an impact on the UK's recovery, but while the disputes in Ukraine and the Middle East were regarded as a threat to trade and growth, it noted that markets were unusually calm.
"Geopolitical risks had also risen, with renewed tensions between Russia and Ukraine, and in the Middle East. The direct links between the affected regions and the United Kingdom were small and the measures imposed so far were unlikely to have any material direct effect on the outlook."Geopolitical risks had also risen, with renewed tensions between Russia and Ukraine, and in the Middle East. The direct links between the affected regions and the United Kingdom were small and the measures imposed so far were unlikely to have any material direct effect on the outlook.
"That said, further escalation had the potential to lead to disruption to energy markets and reductions in investor risk appetite and business confidence. Against that backdrop, the continued low level of volatility in a number of financial markets, particularly that for crude oil, remained remarkable.""That said, further escalation had the potential to lead to disruption to energy markets and reductions in investor risk appetite and business confidence. Against that backdrop, the continued low level of volatility in a number of financial markets, particularly that for crude oil, remained remarkable."