Analysts have stated that to not consider a rise in interest rates this year would be naive. This comes as the Monetary Policy Committee (MPC) splits 7-2 on maintaining the current 0.5% interest rate. The minutes from the MPC meeting were announced a week after the Bank of England’s quarterly report, which released the forecast of the annual wage growth to be half of what was earlier predicted.
Two members of the Monetary Policy Committee have split from the majority and reopened the debate forincreasing interest rates by voting for a quarter raise. If the interest rates do increase, this will be the first increase since 2009, when the rates fell to the lowest level in the 320-year history of the Bank.
The two members of the MPC who voted for the raise, Mr Weale and Mr McCafferty are reported to have said the state of the economy meant a raise in the bank’s rates was justified. Adding the rise in employment throughout the UK would most likely result in salaries gradually increasing.
The opposing members claimed the weak earnings growth, below target inflation and some households’ fragile finances necessitated the current rates to be maintained.
Mark Carney, the bank’s governor, has said that he agreed with the majority to maintain the current rate. He also said there was not yet enough evidence of inflationary pressures to justify an immediate increase in the Bank’s interest rates.
Carney furthered this by explaining he anticipates growth to ease a little and for wage growth to remain weak. He suggested the slack in the labour market may have been greater than previously thought.
The current uncertainty has left businesses unable to plan for growth as the statements from the Bank of England are vague and conflicting. It has been suggested that policymakers need to provide further security for businesses, in order for them to make considered decisions for their futures.
UK economist, James Knightley, said he expects Weale and McCafferty to continue to be the minority for some time yet, suggesting it would be more likely to be in February that the rates are raised.