– Bank of England policymakers remained split on the decision to maintain interest rates as well as the size of asset purchases. Additionally, they do not see the need for an interest rate hike in the near term, as they judged that the ongoing economic weakness could last longer than previously thought.
In the meeting held on July 6 and 7, the nine-member Monetary Policy Committee, or MPC, voted 7-2 to retain the Bank Rate at a record low 0.5 percent. Policymakers Spencer Dale and Martin Weale stuck to their call for a quarter-point increase in the rate.
Meanwhile, eight MPC members voted to leave the size of asset purchase programme unchanged at GBP 200 billion. Adam Posen continued to be the only dissenter, seeking a GBP 50 billion increase in the programme.
The voting pattern for interest rates and quantitative easing was unchanged from June. For Dale and Weale, the argument for tightening policy remained strong, while Posen saw that the balance of risks to inflation continued to warrant an immediate expansion in asset purchases.
“Most members judged that it was appropriate to maintain the current stance of monetary policy at this meeting,” the minutes said. “It was likely that the current weakness in activity would persist for longer than previously thought.”
Policymakers felt that such weakness combined with the continued subdued behavior of earnings, reinforced the case that inflation was likely to fall back once the temporary impact of the factors pushing up on it had waned. Further, there was ‘a range of views’ regarding the downside and upside risks linked to above-target inflation.
“Overall, however, recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term,” the minutes added.
The minutes of the July meeting did not mention any discussion by other members on the expansion of asset purchases. In the previous month’s session, some members said it was possible that further asset purchases might become warranted if the downside risks to medium-term inflation materialized.
The MPC expects inflation to rise above 5 percent in the coming months despite the slowing in June. Inflation slowed unexpectedly in June to 4.2 percent from a two-and-a-half-year high of 4.5 percent.
The figure stayed above the 2 percent target for the 19th straight month in June. The peak in inflation was likely to be a ‘little higher and come sooner’ than the MPC had previously expected, according to the minutes.
Going forward, if the medium term outlook for inflation deviated materially from the target in either one direction or the other, the MPC said it would respond by changing the stance of the monetary policy.
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