Inflation may hold back BOE rate hike, despite vote split
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Bank of England Governor Mark Carney.
LONDON (MarketWatch) - For the first time in three years, there was a split vote among policy members at the Bank of England on whether to raise the benchmark interest rate.
Minutes released Wednesday from the BOE's meeting on Aug. 7 showed two members - Ian McCafferty and Martin Weale - voted to lift the key rate by a quarter-percentage point from the current record low level of 0.5%.
For 'two members, in particular, economic circumstances were sufficient to justify an immediate rise in [the] Bank Rate,' according to the minutes.
Seven members, including Governor Mark Carney, opted to leave the rate where it has been since March 2009, when at that time the central bank knocked the rate down in a bid to help pull the British economy out of recession. The last time the Monetary Policy Committee had a split vote on rates was in July 2011.
The pound was buying $1.6651, and sprang to an intraday high of $1.6680 from $1.6630 just after the minutes were released. The pound traded at $1.6621 late Tuesday.
'We are seeing massive bullish bets coming after the BOE vote,' marking a turnaround for the currency 'which was on the ropes,' ahead of the bank's minutes, said Naeem Aslam, chief market analyst at Ava Trade, in a note. Now that the market sees 'we have two hawkish members in the committee, this has lowered the bar for an increase in the interest rate this year.'
Improvement in some labor-market metrics and overall growth in the U.K. in recent months spurred speculation that some members on the policy committee would view the economy as ready to handle a rate increase.
Two dissenters mean that chances for a rate hike still this year may have increased a bit, said Christian Schulz, senior economist at Berenberg, in a note Wednesday. However, there are caveats, he said, including that 'wage growth has slowed even more according to data releases since the meeting, with weekly earnings falling by 0.2% year-over-year in June.'
Investors will 'have to remember these two (McCafferty and Weale) voted before the weak data came out,' said Steve Collins, global head of dealing at London & Capital Asset Management, on his Twitter feed.
The BOE last week halved its wage-growth forecast to 1.25% for this year.
The 'probability for a first rate hike remains finely balanced, but the majority is likely to hold out until February next year,' said Schulz.
The pound on Tuesday fell after government data showed growth in consumer prices in July fell to a weaker-than-expected rate of 1.6% on an annual basis, suggesting that policy makers had more time to leave rates unchanged.
'MPC infer change, first non 9-0 vote since July 2011, while Inflation says no. The perfect balance of uncertainty,' said Alastair McCaig, market analyst at IG, on Twitter.
The Monetary Policy Committee remained unanimous on leaving unchanged its asset-purchased program sized at 375 billion pound ($623.27 billion).
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