Yahoo Finance Bank of England Surprises With 2 Votes For Rate Hike
Investing.com - The Bank of England left interest rates unchanged as expected on Thursday, but surprised markets with two members of its Monetary Policy Committee voting for a hike, increasing the odds that the BoE could move as early as May.
While the BoE held interest rates steady at 0.5%, MPC members Ian McCafferty and Michael Saunders voted against the proposal, preferring to increase the bank rate by 25 basis points.That surprised markets who were expecting a unanimous vote of all nine members to hold.
The minutes showed that these two dissenters “noted the widespread evidence that slack was largely used up and that pay growth was picking up, presenting upside risks to inflation in the medium term”.
“A modest tightening of monetary policy at this meeting could mitigate the risks from a more sustained period of above-target inflation that might ultimately necessitate a more abrupt change in policy and hence a greater adjustment in growth and employment,” they argued.
The announcement came after the Wednesday jobs report showed that wage growth picked up, closing the gap with inflation, and giving the BoE more leeway to hike interest rates.
The MPC commented on the improvement and indicated that they believed pay growth will rise further in response to the tightening labor market.
“This provides increasing confidence that growth in wages and unit labour costs will pick up to target-consistent rates,” the minutes said.
The BoE reiterated that the UK’s withdrawal from the European Union remained the “most significant influence on, and source of uncertainty about, the economic outlook.”
However, the British monetary authority also noted the risk of the implementation of tariffs by the U.S. Although the effect from the steel and aluminum tariffs was deemed to be small the BoE noted that “there was a risk of escalation”.
“A major increase in protectionism worldwide could have a significant negative impact on global growth and put upward pressure on global inflation,” it added.
The pound immediately strengthened to intraday highs following the announcement but subsequently reversed gains. At 8:44AM ET (12:44GMT), GBP/USD traded at 1.4138 from around 1.4158 ahead of the release, EUR/GBP was at 0.8718 from 0.8700 earlier, while GBP/JPY traded at 148.96 compared to 149.60 previously.
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