Two Bank of England officials backed August rate rise - minutes

Wednesday 20 August 2014 17.04
Bank of England minutes show a split in decision on interest rates
Bank of England minutes show a split in decision on interest rates

Two Bank of England policymakers unexpectedly voted to start raising interest rates this month, becoming the first officials to do so in more than three years, minutes of policy discussions showed today. 

Martin Weale and Ian McCafferty - external members of the BoE's nine-member Monetary Policy Committee - voted to raise British interest rates to 0.75% from 0.5%.

The move could revive expectations of a majority backing higher rates by the end of the year.

Before the Bank of England's August 6-7 MPC meeting, most economists polled by Reuters had expected a split vote on rates. 

But the tone of the bank's quarterly economic update on August 13 caused a subsequent poll to forecast continued unanimity on keeping rates at a record low.

The Bank of England cut its wage growth forecast for 2014 in half and said it wanted to see the prospect of sustainable wage growth before it tightened policy.

But its Governor Mark Carney later added that this did not mean wages had to outpace inflation before rates could go up.

The minutes today showed that Weale - who backed rate rises in 2011, and opposed the introduction of forward guidance - and McCafferty, believed that falling unemployment suggested that stronger wage growth was in prospect.

"Since monetary policy, too, could be expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank Rate in advance of them," Weale and McCafferty said.

Other members of the MPC thought that there were insufficient inflation pressures for it to be worth taking the risk of raising rates.

Most economists did not expect interest rates to rise before February next year. This view has been reinforced by data showing the first annual fall in wages in five years in the second quarter of 2014, as well as a bigger than expected drop in inflation in July.

But some economists expect the Bank of England to start to tighten policy sooner.

Although Britain's economy is still slightly smaller than before the financial crisis, the bank forecasts it will grow by 3.5% this year, which would be its fastest rate in a decade.

UK house prices are also up by 10% nationally, prompting Carney to name the property market as the biggest domestic threat to financial stability earlier this year. 

However, the Bank of England has since taken measures to restrict mortgage lending, and there are tentative signs that price rises are starting to slow.