Differences appear within majority of Bank of England rate-setters

Differences are starting to appear in the approach of how to control the UK economy.

The latest minutes from the Bank of England’s Monetary Policy Committee (MPC) show that there remains a seven to two support for keeping the base rate of interest at its record low of 0.5 per cent.

This has been the view of the MPC for the past four months, but the latest minutes show that there is now a “material spread of views” among those supporting the maintaining of the base rate.

Some of the seven believe that a rise could undermine economic growth and could upset the country’s financial stability.

However, some stressed concern that an interest rate rise could increase sterling compared to the dollar and drive British government bond prices down.

“Individual members ascribed materially different probabilities to these risks,” the minutes said.

Some analysts have concluded the tone of the minutes suggests that Bank of England officials are now uncertain whether interest rates will remain on hold until next year, especially if the inflation rate heads below one per cent in the near future.

However, Bank of England governor Mark Carney recently hinted that the markets may be correct to rule out any possible interest rate rise soon.

“Reading the Bank of England runes is hard at the moment. Last week’s Inflation Report forecast was extremely dovish, but today’s minutes were less so,” said Berenberg’s UK economist Rob Wood.

“Our view is that rate hikes are off the table until after the election, but the Bank of England will pull the trigger in June 2015.”

The forthcoming general election is also likely to be a major factor in what the next step for the interest rate and the MPC may be.

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