Two Bank of England policymakers voted again for an increase in interest rates this month, and there was a “material spread of views” among the seven who opted to keep rates on hold.
Yesterday’s minutes of the Monetary Policy Committee’s November 5-6 meeting showed the majority thought the weak outlook for inflation warranted keeping interest rates on hold at a record low 0.5 per cent.
“Among the members in this group, there was a material spread of views on the balance of risks to the outlook,” the minutes said.
Some thought there was a risk that economic growth might soften further than anticipated and inflation might stay below target for longer, which would leave Britain’s economy vulnerable to shocks if rates rose too soon.
But there was also a risk that spare capacity in the economy could be eliminated more quickly than the bank’s latest forecasts showed.
Policymakers raised questions about whether private domestic spending would remain strong enough to offset budget tightening by the government and weak demand overseas.
Ian McCafferty and Martin Weale, who have voted for a rate hike since August, continued to point out that below target inflation was largely the result of a higher exchange rate and lower raw material prices.
Last week, the BoE issued new forecasts that showed British inflation will likely fall below 1 per cent in the next six months, while Governor Mark Carney suggested markets were right to rule out an interest rate hike any time soon.
Figures on Tuesday showed inflation edged up to 1.3 per cent in October – still well below the bank’s 2 per cent target.
Wage growth exceeded inflation in September but only very slightly.
BoE chief economist Andy Haldane said this week he is watching “like a dove” for signs that expectations of very low inflation in Britain could become entrenched.
And Carney has warned of “huge disinflationary forces” emanating from Britain’s trading partners.
Financial market investors have pushed back their bets on the timing of the next interest rate hike markedly over the past couple of months, and are now pricing in the first move late next year.
News this week that Japan unexpectedly relapsed into recession has further dimmed the outlook for the global economy since the BoE’s rate-setters last met.
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