Bank of England’s Martin Weale and Ian McCafferty vote against Mark Carney on interest rate hike
Two policymakers finally split from the Bank of England’s unprecedented unanimity this month, voting for what would be the first interest rate hike in six years.
The Bank’s two most hawkish monetary policy committee (MPC) members, Martin Weale and Ian McCafferty voted for a modest increase in interest rates.
The change would have brought the Bank’s benchmark interest rateup from 0.5 to 0.75 per cent, but was voted down by governor Mark Carney and six other MPC officials.
The two votes are the first since 2011 in favour of a rate hike, breaking more than a year of unanimous decisions. The last votes to ease policy further came before Carney’s tenure at the Bank began.
The prospect of a rate hike has sharply divided industry groups. Yesterday, the Institute of Directors’ chief economist James Sproule said that interest rates should be hiked to three per cent by the end of 2015.
In contrast, British Chambers of Commerce chief economist David Kern said the two votes were a “disappointing shift of opinion”, and that tighter policy would be a premature move for which firms are not ready.
The most recent data on inflation showed price pressures cooling in July, up by 1.6 per cent, down from June’s reading and below the Bank’s two per cent target. Weak or negative wage growth has also been cited by MPC members as a major reason for holding rates, even as economic indicators like the unemployment rate have improved significantly.
Sterling jumped on the news, but slipped back during the day, ending up just 0.03 per cent against the dollar at around $1.662. The pound had slipped earlier in the week when official statistics showing relatively weak price pressures were released.
Despite the new dissent, analysts at Fathom Consulting said that they still forecast that there would be no rate hike until the beginning of next year, in line with expectations in financial markets: “Historically, dissenting votes have signalled that a policy change is imminent no more than half of the time. Indeed, there are passages in today’s minutes that suggest a number of members may not be ready to vote for a rate hike for some time yet – indeed they may still be harbouring a lingering bias to loosen.”
HAWKS AND DOVES: WHICH BANK RATE-SETTERS ARE MOST LIKELY TO VOTE FOR A HIKE?
MARTIN WEALE
IAN MCCAFFERTY
ANDY HALDANE
BEN BROADBENT
JON CUNLIFFE
KRISTIN FORBES
MINOUCHE SHAFIK
DAVID MILES
MARK CARNEY