Bank of England rate rise more likely - minutes

Wednesday 18 June 2014 18.21
Bank of England releases minutes from June meeting
Bank of England releases minutes from June meeting

Bank of England rate setters have warned that a rise in interest rates this year is more likely than had been widely thought. 

Minutes from the Monetary Policy Committee (MPC) earlier this month disclosed that at the time they found it "somewhat surprising" that markets attached only a relatively low probability of a hike by the end of the year. 

This echoes remarks by Bank governor Mark Carney last week that the first hike in interest rates could come sooner than expected. 

Bank officials expect UK economic growth to slow in the second half of the year but said the risk that this would not happen might mean "slack" or spare capacity in the economy was used up more quickly than thought. 

This key measure is being used by policy makers to determine when interest rates might be able to rise from their current historic low of 0.5%, where they have been for more than five years.

The minutes said that in the context that this slack might narrow more quickly than expected, the relative low probability attached to a Bank rate increase this year implied by some in financial markets was "somewhat surprising". 

At the time of the latest MPC meeting on June 4 and 5, analysts were expecting rates to rise in the first half of next year, with only a 15% chance of it taking place by the end of 2014.

The minutes showed the nine committee members voted unanimously to maintain the rate at 0.5%, despite speculation that some might have voted for a hike this month.

"For some members the policy decision had become more balanced in the past couple of months than earlier in the year," the minutes added. 

UK unemployment has fallen much more rapidly than expected, causing forecasts for the first rate hike to be brought forward from last year when it was not expected to happen until 2016.