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Bank split as two MPC members vote for rate hike

7-2 vote marks the first time there has not been a unanimous decision by Bank of England interest rate setters in over three years.

Bank split as two MPC members vote for rate hike

Two members of the Bank of England's monetary policy committee voted for a rise in interest rates at its August meeting, minutes show, the first time there has not been a unanimous decision in over three years.

Martin Weale (pictured below) and Ian McCafferty argued the continuing fall in unemployment alongside survey evidence of tightening in the labour market meant wage growth was likely to pick up, and pushed for the Bank to 'anticipate labour market pressures by raising the Bank rate in advance of them.'

While the pair voted for a 0.25% interest rate rise to 0.75%, the majority of members argued 'there remained insufficient evidence of inflationary pressures to justify an immediate increase' in the rate, arguing the economic growth rate would moderate. They said that by delaying a hike it would 'allow the expansion to become more entrenched, while raising the rate too early could increase 'the vulnerability of highly indebted households'.

James Knightley, economist at ING, said: 'We expect that Weale and McCafferty will remain in the minority for a while yet.'

'Yesterday's low inflation numbers, the lack of wage growth and concerns about eurozone growth - the UK's largest trade partner, suggest that in the absence of upside activity data shocks the majority will continue to opt for the status quo in the next few months. Indeed, it currently looks more likely to be February when we see the first rate rise than our current published forecast of November.'

The news sent the pound rising off four-month lows to $1.6640, as investors anticipated a rise in interest rates in five months time. Expectations of an interest rate rise had been pushed back to March after the Bank of England slashed its forecasts for 2014 wage growth to just 1.25% in its quarterly inflation report last week.

Bank of England governor Mark Carney has meanwhile been accused of operating a pact with chancellor George Osborne to keep interest rates on hold until after the general election. Mark Field, the Conservative MP for Cities of London and Westminster, told The Times: 'I've long been sceptical that you can have a genuinely independent Bank of England, especially this close to an election.'

John Mann, a Labour member of the Treasury select committee, earlier this week said Carney was trying to delay a rate rise until after the election in May.

5 comments so far. Why not have your say?

The C Suite

Aug 20, 2014 at 13:19

This notion that the Bank of England is playing politics - Carney in particular -has been shown to be in itself nothing short of nonsense politicking. This is not a one man band, as the now split vote is suggesting. The best way to stay politically neutral is to keep policy changes off the table in the months either side of the election, and the Bank knows this.

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Clive B

Aug 20, 2014 at 15:05

It could be argued that making no change either side of an election WAS a political act, as it gives the impression the current government delivers a stable environment. I'd say the BoE should do whatever is right for the economy ignoring the fact there's an election coming.

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jon veale

Aug 20, 2014 at 17:10

Sniping at Carney has begun . . . by those who should know better. It's cheap journalism, and should be restriced to the football pages.

I have watched Dr Carney closely. At last we have an excellent communicator heading the B of E who is also prepared to speak his mind, and that's an impressive and independent one, too. Politics won't get a look in on his watch.

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John Lacy

Aug 20, 2014 at 17:18

I think that there are a number of observations that are relevant about this article.

The first is that Martin Weale and Ian McCafferty should look outside London and it's surroundings and see the reality of the weakness of the recovery the further you move away from the South East.

The second is that they are so obviously mistaken in their judgement that I would question their suitability to be on the interest rate committee where they can potentially cause so much damage.

The third is that Mark Carney is fundamentally a political appointee and it would not be wise (or in his interests) to upset the politicians of any persuasion if he wants to keep his job!

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Expat 2008

Aug 20, 2014 at 17:40

I agree with John Lacy but I would add that the deflationary pressures are not just being felt north of the South East, but South of the South East too in France which as enjoyed zero economic growth so far this year and Germany that has just published factory gate prices 0.8% lower this month.

Our largest trading partner the EU is set for a possible Japan style decade of deflation and the early signs of deflation can already be seen in the UK - ever falling shop prices funded by ever falling factory gate prices funded by ever falling salaries leading to reduced demand which leads to - guess what? Even lower prices and so on. Last weeks channel 4 dispatches program portrayed that the deflationary buck stops with employees with reduced salaries.

Why purchase non essential items now if they will be cheaper in 6 months? If 3.75billion and QE and 6 years of 0.5% interest rates cannot produce inflation and pay rises then what can?

If the evidence on the High Street is anything to go by the election will come and go and we'll still be debating the timing of the next interest rate rise this time next year - won't we?

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