One might comment that Mark Carney acted a little too rashly last June following the UK’s shock vote to leave the EU. The Governor of the Bank of England reduced rates from the then historic low of 0.5% to a new low of 0.25% after warning something akin to a second great recession could hit the UK in the wake of a leave vote.
But nearly a year on, the central bank’s Monetary Policy Committee (MPC) were close to raising interest rates once more, voting five-to-three to keep rates at their current levels, with Carney remaining resolute in holding at 0.25%. The votes to raise the base rate are likely influenced by steadily climbing levels of inflation, which look set to go above 3% before the end of 2017. Add to this the mix of stagnant wage growth and a weak pound and you get the recipe for reduced consumer spending.
An increase in interest rates would put a squeeze on inflation, which is currently sat at 2.9%, well above the Bank of England’s target inflation rate of 2%. After the minutes of the MPC’s meeting were released, the pound enjoyed a pleasant surge in value up to $1.2795 amid hopes a rate increase was imminent, but economists remain unsure. Conversely, the US Federal Reserve decided to plough ahead with a planned rate increase from 1 to 1.25% despite concerns over falling levels of inflation there.
Are the central banks right in their steadfast commitment to current policy? We’ll be keeping an eye on it to make sure.
Surprise for markets as trio of Bank of England gurus call for interest rates to rise Three Bank of England officials have called for UK interest rates to rise in a surprise move that signals policymakers are becoming more concerned about higher inflation even as the economy slows. Bank policymakers voted 5-3 on Thursday to keep interest rates on hold at a record low of 0.25pc. External members Ian McCafferty and Michael Saunders joined MIT professor Kristin Forbes in voting to raise rates by 0.25 percentage points to 0.5pc. The last time there were three dissenting votes to tighten policy was May 2011.