Minutes of meeting show more support for rate hike

Bank of England May Hike Rates Earlier Than Anticipated

Bank of England May Hike Rates Earlier Than Anticipated

Minutes of the latest meeting of the Bank of England’s Monetary Policy Committee (MPC) shows a third member has voted in favour of an interest rate hike in the UK.

Spencer Dale – Chief Economist of the Bank of England, is the latest member to join Martin Weale and John Sentence – both external members of the committee, for a hike in the bank’s current lowest lending rate of 0.5 percent.

While Sentence had been demanding a 0.5% to 1% hike in rates, Weale and Dale have been more moderate with their demand of 0.25% hike.  The other six members voted in favour of the current record low of 0.5% arguing any rate hike may push the economy back into recession.

One of the MPC members, Adam Posen, advocated for a quantitative easing of £50 billion to increase the money supply base.

Markets are currently expecting a rate hike in May and the latest news may drive them to factor in a rate hike earlier.

The recent spike in inflation to 4% from the central bank’s target of 2% has been mainly driven by a weak pound – making imports expensive, a spike in global commodity prices, especially oil and a hike in the VAT.

“Most members agreed that the balance of risks to inflation in the medium term relative to the target had moved upwards in recent months and that the case for withdrawing some of the current exceptionally accommodative monetary policy had consequently been strengthened”, the minutes read.

The three members demanding a rate hike argue that the global price pressure outweighs the economy’s recovery.

The central bank had forecasted before that inflation will fall back to the targeted 2% level in a couple of years time provided the bank started hiking rates. Mr. Mervyn King – governor of BoE said investors can expect a rate hike by the middle of the year.

However, the minutes also indicate that other members thought there was ‘merit’ in waiting to see if late last years shock contraction of the country’s economy has been reversed before rates are hiked.

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