Unsurprisingly the Bank of England’s Monetary Policy Committee (MPC) voted today to keep the bank rate at 0.5% for the 63rd successive month and to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.
This continues the interest rate policy set over five years ago in March 2009 and the size of the quantitative easing programme when it was last increased nearly two years ago in July 2012.
However as Martin Beck, senior economic adviser to the EY ITEM Club, comments below the MPC may become split from their previous unanimity over time.
“While today’s decision by the MPC to leave interest rates on hold was predictable, the era of unanimity among MPC members may be coming to an end. Recent speeches and interviews suggest that opinions among the Committee may be diverging on the case for maintaining interest rates at their current ultra-low level.” He said.
“All eyes will now be on the meeting of the Financial Policy Committee on 17th June. With recent data offering mixed messages on whether the housing market is heating up or cooling down, intervention by the FPC to dampen house price growth is not guaranteed. But any action by the FPC – perhaps the imposition of additional capital requirements on high loan-to-income mortgages – will reduce pressure on the MPC to consider a rate hike. At the very least, the MPC will want to give time for any macro-prudential measures to take effect. What’s more, if the ECB decides later today to loosen monetary policy in the euro-zone, upward pressure on sterling is likely to grow, tightening monetary conditions in the UK and pushing down inflation.
“So despite our expectation of continued strong economic growth and falling unemployment, a rate hike still looks unlikely until well into 2015. A split vote on the MPC may emerge sometime in the next few months, but the Committee’s hawks are set to remain in a minority for some time to come.”