Bank of England chief economist Spencer Dale has joined two external members of the nine-strong interest rate-setting monetary policy committee in voting for a rate rise
Bank of England chief economist Spencer Dale has joined two external members of the nine-strong interest rate-setting monetary policy committee in voting for a rate rise.
Vicky Redwood, senior UK economist Capital Economics
The hawkish tone of February's UK MPC minutes further increases the chances of a near-term rate hike ? although the minutes also make clear that much will depend upon how the economic data pan out over the next few weeks. Spencer Dale joined Andrew Sentance and Martin Weale in voting for a rate hike. What's more, while Dale and Weale voted for a 25bps rise, Sentance upped his vote to a 50bps hike. So with Posen still voting for more quantitative easing, there are now four different views on the MPC on what to do. Meanwhile, even of those voting to leave rates unchanged, "some thought that the case for an increase had nevertheless grown in strength," [the minutes revealed]. Accordingly, the committee has certainly moved much closer to voting for a hike since the last meeting. However, most MPC members still wanted to wait to see whether the drop in GDP at the end of last year "presaged sustained economic weakness" or not, and warned that a rate rise could damage consumer confidence. Accordingly, if we are right in expecting the recovery to struggle, a near-term rate hike can still be avoided.
Howard Archer, chief UK & European economist IHS Global Insight
The hawks within the MPC are growing in numbers and gaining ground, with an interest rate hike looking ever more likely within the next few months. There are also signs that other MPC members could be near to voting for an interest rate hike as the minutes reported: "Of those members not favouring a rise in Bank Rate, some thought that the case for an increase had nevertheless grown in strength." However, "given the potentially disruptive impact of reversing any immediate change in Bank Rate, there was merit in waiting to see how the economy performed at the start of the year to help assess whether or not the decline in GDP in the fourth quarter presaged sustained economic weakness. A rise at this juncture could damage household and consumer confidence, which remained fragile."
James Knightley ING Bank
[The minutes] suggest that a rate hike is unlikely before May, when the BoE publishes new economic forecasts. So far the data has bounced back from December's weather-related weakness, but with household spending constrained by negative real disposable incomes, falling house prices and constrained credit conditions the prospect for growth remains poor. Indeed, net exports have responded disappointingly to sterling's depreciation while government spending is contracting so there is a massive burden on investment spending to generate growth in the UK. We therefore suggest domestic demand and wage pressures on inflation will remain weak. Therefore, if the BoE does decide to raise rates this year it will do so more slowly and modestly than the market is currently pricing (implied rates suggest markets anticipate Bank Rate at 1.5% by March next year).
Jeremy Cook, chief economist at World First
This heightens the chance that we will see an interest rate rise in May as opposed to later in the year. Most members agreed that the case for withdrawing the stimulus in the form of the �200bn of quantitative easing and the ultra-lax monetary policy had strengthened. The reappraisal of Q4's GDP figure on Friday will be key to the market's mentality in the coming weeks and could see this newly found hawkishness nipped in the bud. We also have to remember that Andrew Sentance, who voted for a 50bps increase, is leaving soon and I doubt that Martin Weale is ready to take up the super-hawk baton.
Nida Ali, economic adviser to the Ernst & Young Item Club
Today's minutes reveal that MPC members' concerns regarding the upside risks to inflation are on the rise, with even those voting for no change in monetary policy concurring that the likelihood of a rise in inflation expectations materialising had grown. However, we still expect interest rates to remain at 0.5% in the near future, given that there is no real evidence of an increase in inflation expectations at the moment. Recent labour market data reveals that pay settlements remain well contained. And given the high level of unemployment, the prospect of wages spiralling upward is low.
Source: http://www.guardian.co.uk/business/2011/feb/23/bank-of-england-minutes-what-the-economists-say
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