Bank of England minutes: Policymakers vote 9-0 to keep rates on hold
Minutes from the Bank of England's May meeting have shown little change, with the monetary policy committee again voting 9-0 to keep interest rates at 0.5 per cent.
Two members felt the decision was "finely balanced", implying they're thinking about reversing their vote. All members agreed interest rates "were more likely than not" to rise over the three-year forecast period.
Here are four key takes from the minutes:
1. Inflation hovers around zero near-term
Policymakers reiterated their view that the inflation rate will remain near zero in the near-term, before increasing "notably" towards the end of the year.
"The committee’s central view continued to be that, in the absence of further falls in commodity prices, inflation rates close to zero were unlikely to endure for very long. The committee’s central expectation was that CPI inflation would pick up notably towards the end of the year."
Official data released yesterday showed Britain had slipped into deflation for the first time since the 1960s – with prices falling 0.1 per cent in the year to April due to air and sea fares as well as the timing of Easter.
2. With policymakers are still divided on slack
Policymakers remained divided over how much room is left for the economy to grow before stoking inflation. When as economy is running at full capacity businesses must meet rising demand by investing more, which is expensive, and drives up prices.
"Overall, the committee’s best collective view was that slack was currently broadly in the region of 0.5 per cent of gross domestic product and was likely to be fully absorbed within a year. There was considerable uncertainty around that judgement, however, and there was a range of views on the committee about both the current degree of slack and how quickly it would narrow."
3. They see "upside risk" to house prices
The MPC also said house prices could face upside risk in the second half of this year, with provisional data showing a shortage of new homes coming onto the market
"Provisional data from the RICS [Royal Institute of Chartered Surveyors] survey for April had indicated secondary housing market supply had continued to fall relative to housing demand. The net balance for new buyer enquiries had risen and new instructions to sell had fallen. This could indicate upside risks to house prices in the second half of 2015."
4. … but they feel better about market expectations for a rate rise
The committee was also feeling better about the market's expectations for when it will start hiking interest rates. April's minutes said the market yield curve was "exceptionally flat", suggesting markets were too complacent.
"The short end of the UK yield curve had also steepened a little on the month. Some of these upward moves had come on the day of the release of the minutes of the committee's previous meeting although it was likely other factors had also played a role."