Doves rule the roost on UK rates

BANK of England officials voted unanimously to hold interest rates at a record low this month as the lone ‘hawk’ calling for a hike fell back into line.

With the central bank cutting its forecasts for growth and inflation in the UK, all nine members of the monetary policy committee agreed to leave rates at 0.5pc.

It was the first unanimous decision since July last year and came after Ian McCafferty stopped arguing for higher rates, marking a major shift of sentiment on the committee.

McCafferty, a former chief economist adviser to the CBI business lobby group, said that the more prolonged period of low inflation convinced him that wage growth would be ‘more muted than previously expected’.

Sterling fell sharply as the details of the vote were announced, hitting a low of $1.4532 and €1.2986 before recovering.

The change of tack by McCafferty – and the gloomy outlook in the central bank’s quarterly inflation report – suggested rates would not rise at all this year and could stay on hold for much of next year.

Some observers now expect the first rate hike since 2007 to come in 2018.

David Lamb, head of dealing at the currency specialists Fexco, said: ‘With UK inflation continuing to be dragged down by tumbling commodity prices, the prospect of an interest rate rise is as remote as ever. The confirmation that the doves now rule the roost on the rate-setting committee – with even the serial hawk Ian McCafferty now abandoning his calls for a rate hike – mean all bets are off on interest rate policy.’