Bank of England divided on rate hike

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BankofEngland1 Reuters.

London - The Bank of England is divided on whether to maintain record-low interest rates as minutes published Wednesday revealed its first split vote for more than three years.

The 7-2 vote in favour of keeping the BoE's main lending rate at 0.50 percent at its August policy meeting was the first non-unanimous decision on borrowing costs since July 2011.

Analysts said the central bank was unlikely to vote by majority to raise rates before the end of 2014.

They said that the bank was unlikely to change direction soon because British inflation was low, but would gradually raise interest rates from the first quarter of next year.

Markets are watching to see when the Bank of England will embark on a round of interest rate rises as Britain's economic recovery outpaces the neighbouring eurozone.

“For two members, in particular, economic circumstances were sufficient to justify an immediate rise in Bank Rate,” the minutes said.

The two, Ian McCafferty and Martin Weale, voted for a rise to 0.75 percent, while the seven other members of the Monetary Policy Committee (MPC), which includes governor Mark Carney, called for the rate to stay unchanged.

The BoE's main lending rate has stood at 0.50 percent since March 2009.

“For most members, there remained insufficient evidence of inflationary pressures to justify an immediate increase in Bank Rate,” the minutes added.

Official data on Tuesday showed that Britain's 12-month inflation slid to 1.6 percent in July, moving further away from the BoE's target rate of 2.0 percent.

“We suspect that Weale and McCafferty will remain in the minority for a while yet,” said James Knightley, economist at ING Bank.

“Yesterday's low inflation numbers, the lack of wage growth and concerns about eurozone growth - the UK's largest trade partner - suggest that in the absence of upside activity data shocks, the majority will continue to opt for the status quo in the next few months.

“Indeed, it currently looks more likely to be February when we see the first rate rise than our current published forecast of November,” he added in a note to clients. - Sapa-AFP



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