August rate rise edges closer as split grows on monetary policy committee

● Andy Haldane joins Ian Mccafferty and Michael Saunders in calling for hike

Support for a hike in interest rates is growing with a rise before the end of the summer now a possibility.

The Bank of England yesterday held borrowing costs at 0.5 per cent, but revealed growing support for an increase amid mounting signs that the economy may be recovering from a weather-hit start to 2018. Members of the central bank’s nine-strong monetary policy committee (MPC) voted 6-3 to keep rates unchanged, with policymaker Andy Haldane joining existing hawks 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 – the Bank’s chief economist – has dissented since he joined the rate-setting panel in 2014.

Minutes of the 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 that the Bank continues to expect the UK economy to bounce back in the second quarter after a weather-buffeted start to the year, when GDP edged ahead by just 0.1 per cent.

Nick Dixon, investment director at Aegon, said: “With global trade concerns, continued Brexit uncertainty and subdued domestic activity, the 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.”

Alastair Neame, senior economist at the Centre for Economics and Business Research (CEBR), said: “An additional MPC member voting in favour of a rate rise caused sterling to rise as the prospect of an August hike becomes more likely.

“CEBR expects that, in the absence of further economic shocks, a 0.25 per cent rate rise is still on the cards for 2018.”

● The Chancellor has been given a boost after official figures showed government borrowing declined in May, helped by higher tax receipts. Net borrowing was £5 billion, from £7bn a year earlier.