BoE Keeps Rates on Hold, Echos Recent Views

The views of Bank of England policymakers appeared little changed in May when they voted unanimously to keep interest rates on hold.

Minutes of the Monetary Policy Committee’s May meeting also

showed the Bank’s rate-setters saw the possibility of a recent pick-up in British house prices posing renewed risks.

The MPC voted 9-0 to keep interest rates at 0.5 percent.

Two of its nine its members felt the decision was finely balanced between voting to keep rates on hold or to raise them, echoing previous meetings.

Martin Weale and Ian McCafferty voted in favour of a rate increase in the last few months of 2014 but rejoined the no-hike majority in January as inflation tumbled. They are expected to be the first to start voting again for a rate hike.

At their May meeting, policymakers reiterated their views on the outlook for inflation, saying that unless oil and commodity prices fell again, inflation rates close to zero were not likely to last long and would pick up notably towards the end of 2015.

The main split on the committee remained on the risk of falling unemployment triggering faster wage growth that could stoke a faster pick-up in inflation than expected by the Bank.

But there was no sign that any of the BoE’s top officials saw any need to stimulate the economy further and they expected a slowdown in the first quarter to be shortlived.

“While there was a range of views over the most likely future path for Bank Rate, all members agreed that it was more likely than not that Bank Rate would rise over the three-year forecast period,” the minutes said.

The Committee noted there appeared to be upside risk to British house prices after data from a surveyors organisation showed a shortage of new homes coming on to the market.

The minutes showed policymakers were more comfortable than they had been a month earlier about expectations in financial markets for when it might start to raise borrowing costs.

“The short end of the UK yield curve had also steepened a little on the month,” the minutes said. “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.”

However, they did note that yields on 10-year British government bonds remained “unusually low.”

The prospect of higher U.S. interest rates has pushed up borrowing costs in markets in recent weeks. The yield on 10-year British government debt GB10YT=RR pushed above 2 percent earlier this month for the first time since early December before slipping back.

The meeting took place hours after Prime Minister David Cameron’s Conservative Party won an unexpected outright majority in parliamentary elections, paving the way for further spending cuts to fix Britain’s public finances.

The squeeze on spending is expected to be a factor that could help persuade the Bank to keep interest rates at their record low for longer, having already sat at 0.5 percent for more than six years.

The minutes published on Wednesday also showed the nine members of the MPC all voted to keep the Bank’s stockpile of government bonds, amassed as a further stimulus for the British economy, unchanged at 375 billion pounds.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.