The Bank of England’s interest rate setting committee was split in December when two members maintained their view that forecasts of higher wages next year should be offset by higher credit costs.
Martin Weale and Ian McCafferty, who have voted for a rate increase since August, said at the monetary policy committee’s December meeting that the dip in inflation was clouding the vision of the Bank, which should beware the possibility for runaway prices in 2016 without a rate rise at the earliest opportunity.
The pair argued that below-target inflation, which hit 1% in November, was largely the result of a higher exchange rate and lower raw material prices.
But the MPC voted five to two in favour of keeping interest rates at 0.5%, according to minutes published on Wednesday.
The majority focused heavily on falling oil prices that look set to stay at historic lows well into next year. They said inflation was likely to fall to less than 1% in December – far below its 2% target – and was likely to stay lower than previously thought.
“However, there was also a risk that the degree of spare capacity could be eliminated more quickly than previously assumed, particularly if Bank rate were to follow the path implied by market yields,” the MPC majority said.
The minutes showed that different members saw different risks, but they did not repeat November’s language of there being a “material spread of views”, which had caused market analysts to believe that some MPC members were edging closer towards raising rates.
Mark Carney, the Bank of England’s governor, said on Tuesdaythat the fall in oil prices was an “unambiguously net positive” for Britain’s economy. But he added that the Bank would look through the direct effect of that fall on inflation.
via The Guardian