FXStreet (Łódź) - BoE Minutes from the MPC monetary policy meeting held on 6 and 7 August and released today reveal that the Committee voted 7-2 in favor of maintaining the interest rate at the record low of 0.5% and unanimously opted for keeping the program of asset purchases steady at £375 billion. This outcome is against the general expectation of an unanimous vote for staying on hold.
Ian McCafferty and Martin Weale were the MPC members who preferred to increase the interest rate by 25 basis points to 0.75%, arguing that robust UK economic growth justified a hike, which should be carried out before wage pressures emerge due to lags in monetary policy. An early interest rate rise would also allow for a gradual tightening, they suggested.
On the other hand the remaining seven MPC members didn't see an early rate rise justified by the current UK inflation projections, which point to CPI reaching "the 2% target only at the end of the three-year forecast period.” They also suggested such a move could result in further strength of the sterling which could impede rebalancing of the economy and expose indebted households.
This is the first time since 2011 that MPC members were not unanimous on rates.
GBP/USD rose to 1.6676 after the release of the minutes, although " the rally hasn't been that marked, certainly by cable standards," as Gerry Davies points out on FXBeat.
According to James Knightley from ING: "Weale and McCafferty will remain in the minority for a while yet."
"Yesterday’s low inflation numbers, the lack of wage growth and concerns about Eurozone growth – the UK’s largest trade partner, suggest that in the absence of upside activity data shocks the majority will continue to opt for the status quo in the next few months."
"Indeed, it currently looks more likely to be February when we see the first rate rise than our current published forecast of November."