Looking Into the Interest Rate Crystal Ball
Updated: 12:43pm UK, Wednesday 20 August 2014
By Ian King, Business Presenter
It is certainly dramatic news, on the face of it, that two members of the Bank of England's Monetary Policy Committee (MPC) have voted to raise interest rates.
After all, no MPC member has voted to tighten monetary policy since July 2011.
Yet the development is not as startling as it might have seemed. Many market commentators had been speculating, in advance of the minutes being published at 9.30am on Wednesday, that this would be the month in which the MPC's unanimity finally disappeared.
That the two MPC members who did vote to raise Bank rate were Martin Weale and Ian McCafferty also came as no surprise.
The hugely respected Mr Weale, in particular, is a fiercely independent soul. For example, he was a dissenting voice when the Bank, under its then-new Governor Mark Carney, introduced a policy of 'forward guidance' last year.
Moreover, as recently as June, Mr Weale gave a speech during which he indicated that he thought there was less slack in the economy - the key measure that Mr Carney has said will now guide interest rate policy - than the 1% to 1.5%of GDP that the Bank's quarterly inflation report in May was suggesting.
Since then, there has been further evidence that slack in the economy has fallen away, most notably with the continued fall in unemployment at a rate that continues to surprise.
Mr Weale has also previously indicated that he favours raising the Bank rate this year because - as he stated in an interview with Sky News in February this year - it would be difficult to do so during the run-up to the General Election.
So his vote ought to have come as no shock.
Mr McCafferty, meanwhile, also nailed his colours to the mast during a speech in June in which he said that an early rise in interest rates would enable the MPC to move more gradually and in a way that would minimise disruption to households and businesses.
So his vote should really be no surprise either.
What will confuse some, though, is that details of the vote come just days after the Bank's latest quarterly inflation report struck a markedly more dovish tone.
This is not the first time that the MPC minutes have appeared to be at odds with the way in which Mr Carney has presented the inflation report.
The big question households and businesses will now be asking is whether this makes an early rise in Bank rate more likely. The answer is - only slightly.
There is an outside chance that the committee will raise the base rate before Christmas - November would be the likeliest month as Mr Carney would then be able to explain the move at that month's quarterly inflation report press conference - but more likely is that the MPC will wait until February next year.
These latest minutes note that, for most MPC members, there is "insufficient evidence of inflationary pressures to justify an immediate rise in Bank rate".
And that was before the latest figures published on Tuesday showed Consumer Price Index of inflation falling from 1.9% to 1.6% and further away from the Bank's 2% target rate.
Inflation is likely to remain benign in coming months and not least because of the current softness in oil prices.
So a rise in Bank rate early next year, rather than this side of Christmas, remains the way to bet.
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