The Bank of England has held interest rates at 0.5 per cent, but revealed growing support for a hike amid mounting signs the economy is bouncing back from a weather-hit start to 2018.
Members of the Bank’s monetary policy committee (MPC) voted 6-3 to keep rates unchanged, with policymaker Andy Haldane joining existing dissenters Ian McCafferty and Michael Saunders in calling for an immediate hike to 0.75 per cent.
It marks the biggest split vote on the MPC since June 2017 and the first time that Haldane has dissented since he joined the rate-setting panel in 2014.
Minutes of the Bank’s latest decision reveal the three dissenters felt there were “limited” benefits from holding off from hiking rates.
The Bank backed away from a hike last month after a sharp slowdown in growth, having previously guided to expect rates to rise faster and further.
The report shows the Bank continues to expect the economy to bounce back in the second quarter after a weather-impacted start to the year, when growth slowed sharply to 0.1 per cent.
It said data on business activity since its May inflation report pointed to a pick-up in second quarter growth as expected, having previously estimated gross domestic product (GDP) rising by around 0.3 per cent between April and June.
In a blow to households, the Bank confirmed that inflation – currently at 2.4 per cent – was set to rise by more than it expected, pushed higher by rising oil prices and the ongoing weakness in the pound.
But the majority of the MPC continued to want to wait and see how the “data evolved from here” before pushing the button on a rate rise.
Alasdair Ronald, senior investment manager at Brewin Dolphin Glasgow, said: “The Bank of England left interest rates unchanged again today, as expected.
“It prefers changes to coincide with the release of its inflation report, with the next opportunity being August, but the economic data will need to improve for that to happen.
“Slower growth with our export markets in the eurozone and the dwindling benefit from sterling’s devaluation are factors.
“The impact of Brexit and trade uncertainty are harder to measure. The market is currently reflecting a very shallow trajectory of rate increases.
“Wages continue to be the dog that doesn’t bark, despite a tight labour market and business surveys describing upward pressure. A welcome improvement in recent productivity would suggest that they can rise without causing inflation.”
Nick Dixon, investment director at Aegon, added: “With global trade concerns, continued Brexit uncertainty and subdued domestic activity, today’s MPC decision to hold rates is unsurprising.
“Looking further out, two factors will be critical for inflation and hence interest rates. First the quality of Brexit especially the eventual trade deal will impact the level of sterling and hence inflation.
“Second is the labour market and whether wage pressures become embedded and create ‘cost push’ inflation. If sterling continues to depreciate and wage increases lead to higher prices, there will be pressure for interest rates to rise higher and faster than markets currently expect.
“In this context, Aegon is cautious about fixed interest particularly government bonds, which will likely come under increasing pressure as inflation and interest rates rise.”