MPC votes eight to one to hold Bank Base Rate at 0.5%
Ian McCafferty voted against the proposal to hold the bank base rate at 0.5%, advising an increase of 25 basis points.
The MPC’s minutes of the meeting held on 5 August revealed the committee was not prepared to promise that the rate would rise more gradually than it had in previous cycles due to economic headwinds, as laid out in its February 2014 inflation report. But it did confirm this message remained relevant. The minutes went on to pave the way for a new approach to the rate rise if the committee thought it necessary.
The minutes read: “Moreover, the persistence of those headwinds, together with the legacy of the financial crisis, meant that Bank Rate was expected to remain below average historical levels for some time to come. That guidance [2014 inflation report] on the likely pace and extent of interest rate rises was an expectation, not a promise: the actual path Bank Rate would follow over the next few years was uncertain, and would depend on economic circumstances.”
While delivering a speech in Lincoln Cathedral in July, Mark Carney said in order to achieve the inflation target of 2%, the MPC would need to gradually increase the Base Rate ‘around the turn of this year’.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘When it comes to forecasting the next interest rate rise, the markets have been consistently wrong for the past five years. Given that the recovery is still finely balanced, the enormous level of debt and lack of any real reason why interest rates should go up in the near future, we wouldn’t be surprised if rates didn’t go up until 2017, rather than next year.”
Harris said if the Bank of England wants to exert some control over house prices there were other ways of doing it rather than raising interest rates. “The Chancellor demonstrated this in the Budget by placing restrictions on mortgage tax relief, which should make people think twice before getting into buy to let.”
Calum Bennie savings expert at Scottish Friendly said: “A lone hawk has broken the unanimity among the committee members for the first time this year, which would suggest that the UK is approaching a tipping point at which rates will change. However, clearly the economy has to grow further before a rise can be seriously considered and it could be next year before the MPC increases base rate.”