Interest rates left unchanged – but hike expected in May

A rise in interest rates could be on the way. Although the Bank of England’s Monetary Policy Committee (MPC) has voted to hold interest rates steady at 0.5%, it has also given strong hints of a hike in May.

Policymakers voted 7-2 to keep the benchmark unchanged this month, with Ian McCafferty and Michael Saunders hawkishly pushing for an immediate increase to 0.75%.

The pair argue that a rise in borrowing costs is needed because “slack in the economy has been used up” and wage growth is accelerating, Bloomberg reports.

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The BoE’s key interest rate has remained unchanged since November when it was raised for the first time in more than a decade.

“The best collective judgement of the MPC remained that, given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period would be appropriate,” said the minutes of this month’s meeting.

Craig Inches, head of rates & cash at Royal London Asset Management, told The Guardian that the Bank of England “missed an opportunity” by not raising rates today.

“With real wage growth moving into positive territory for the first time in over two years, strong retail sales and some welcome progress on the Brexit negotiations, the uncertainty that has concerned the bank in recent months is beginning to be demystified,” he said.

However, BBC economics editor Kamal Ahmed warns that growth is still fairly weak. “Too sharp a yank on the interest rate lever could apply dampeners just when they are not needed,” he says.

The Bank of England’s decision comes a day after the US Federal Reserve raised interest rates from 1.5% to 1.75% – the sixth increase since 2015.