Forecasts for future hike grow as Bank holds interest rates at 0.5%

THE Bank of England has held interest rates at 0.5%, but edged closer to a hike after its chief economist joined two fellow policymakers in calling for a rise.

Members of the Bank’s Monetary Policy Committee (MPC) voted 6-3 to keep rates unchanged, with Andy Haldane switching sides to join fellow dissenters Ian McCafferty and Michael Saunders in pushing for an immediate hike to 0.75%.

It marks the biggest split vote on the MPC since June 2017 and the first time that Mr Haldane has dissented since he joined the rate-setting panel in 2014.

Sterling rose sharply against the dollar, trading 0.6% up at 1.312 and 0.4% higher at 1.14 euro, as the vote fuelled expectations for a hike as soon as August, when the Bank’s next set of forecasts is published. Minutes of the Bank’s latest decision reveal the three dissenters felt there were “limited” benefits to holding off from increasing 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-hit start to the year, when growth slowed sharply to 0.1%.

It said data on business activity since its May inflation report pointed to a pick-up in second quarter growth as expected, having estimated gross domestic product (GDP) to rise by around 0.3% between April and June.

In a blow to households, the Bank confirmed that inflation — currently at 2.4% — was set to increase 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.

The report added: “For these members, the news since the previous meeting had given them greater reassurance that the softness of activity in the first quarter had been largely temporary.”

For the three calling for a hike, the minutes revealed “these members had a higher degree of confidence that the slowdown in the first quarter was temporary or erratic and would largely be unwound”.

It added: “These members also felt the benefits of waiting for additional information were limited.” The vote firmed expectations that the next hike could come in August.