Interest rate decision was on a knife edge
The Bank of England’s monetary policy committee unexpectedly voted by a majority of just one not to raise interest rates again this month, with the governor, Mervyn King, outvoted.
Minutes of the June 6-7 meeting released this morning caused sterling to jump against other countries and interest rate futures move to price in another rate rise in the very near future.
Mr King was joined by deputy governor John Gieve, Tim Besley and Andrew Sentance in calling for a second consecutive rate rise this month, which would have taken bank rate to 5.75%.
But the other five members, including the other deputy governor, Rachel Lomax and chief economist Charlie Bean, voted to leave rates steady
Analysts had expected a 7-2 vote to leave rates on hold and this marks only the second time in the MPC’s 10-year existence that the governor has been on the wrong side of a rate vote.
MPC members arguing for no change in rates said a decision to hike rates in June would have surprised the market and “probably pushed the yield curve higher, which would not be warranted”.
They also pointed to the need for “measured” rate rises given the high level of personal debt - interest rates have already risen four times in the last year - and said there were early signs of the housing market and consumer spending slowing.
But the hawks argued that not much had changed since the May Inflation Report which had signalled one more rate rise.
“For these members there was no compelling reason to wait. Moreover, by raising now, the peak in interest rates could eventually be lower,” the minutes said.
In contrast to the doves, the hawks said a rate rise would not have been much of a surprise.
They also pointed to house price inflation being higher in almost every part of the country and said the easing in spending data was at best tentative.
Separately, the Bank released data on M4 money supply which showed it growing by 1.2% in May from April to stand 13.8% higher from a year earlier - the biggest rise since October 2006.
Other data from the British Bankers Association showed underlying net mortgage lending rose by its largest amount in six months in May, although the Building Societies Association said lending by its members eased on the year.
