Split predicted among interest rate setters next month

All nine members of the Bank of England's Monetary Policy Committee (MPC) voted to hold interest rates at 0.5 per cent this month – but analysts are forecasting a split at August's meeting.

BoE governor Mark Carney indicated last week that interest rates could rise at the turn of the year. Minutes from this month's MPC meeting showed that some policymakers considered voting for a rate rise as early as this month. They were, however, dissuaded by uncertainty caused by the Greek debt crisis.

The MPC, which meets on the first Thursday of each month to set interest rates, has an inflation target of two per cent. Minutes from the meeting showed that "a number" of members were concerned that inflation might rise above this mark in the medium term.

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"For these members, the uncertainty caused by recent developments in Greece was a very material factor in their decisions: absent that uncertainty, the decision between holding bank rate at its current level versus a small increase was becoming more finely balanced," said the minutes.

Howard Archer, chief economist at IHS, told City AM there seems a "very strong possibility" that August will see the committee's first split this year on keeping interest rates unchanged. However, he was doubtful that a rate rise will command majority support until early 2016.

Archer said he was sticking by his prediction that rates will rise in February by 0.25 per cent, but he added: "We have become markedly less confident in this call and there is clearly now a very real possibility that the MPC could act before the end of 2015."

Chris Williamson, chief economist at survey data company Markit, told the Financial Times that the minutes showed "a mood of hawkishness developing steadily among policymakers". He added that the barriers to hiking rates have "steadily come down".

The pound strengthened against the dollar and the euro after the minutes were published on Wednesday.

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