The Bank of England has raised expectations it will increase interest rates in August after its chief economist unexpectedly joined the minority of policymakers calling for a hike.
The Bank’s all-powerful Monetary Policy Committee (MPC) voted 6-3 to keep rates at 0.5% this month. But in what the BBC’s economics editor Kamal Ahmed described as a “decisive move”, Andrew Haldane, the Bank’s chief economist, joined two other long-term dissenters in voting to raise rates to 0.75%.
Reuters says this unexpected shift, the first time Haldane has voted against the majority view since he joined the Bank in 2014, was “due to concerns that recent pay deals and labour demand could push wages up faster than expected”.
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Despite GDP growth of just 0.1% in first quarter of the year, government borrowing figures published on Thursday boosted hopes among some economists that the economy may be gaining momentum.
Inflation continues to fall from a five year high of 3.1% hit last November and with unemployment at its lowest level in more than 40 years, the bank has signalled it will look to raise rates sooner rather than later.
“This all suggests that an August rate hike is ... more likely than not,” ING economist James Smith told Reuters. “While the Bank hasn’t offered any firm signals or commitments ... the overall outlook and tone suggests they’d still like to raise rates (if) the data allows.”
Before yesterday’s vote “the markets were split 50/50 on whether there would be a rate rise at the MPC's next meeting in August”, the BBC reports.
If it does raise rates in August it will be only the second time in almost a decade, after cutting rates to almost nothing in the wake of the financial crisis.
