Interest rates: Minutes show two Bank policymakers voted for rise

The Bank of England

Related Stories

Two members of the Bank of England's Monetary Policy Committee (MPC) voted to raise interest rates in August, the first time in three years that policymakers have done so.

The minutes of the meeting on 6-7 August show Ian McCafferty and Martin Weale voted for a 0.25% rise to 0.75%.

It means the nine-member MPC voted 7-2 to hold interest rates at their historic low of 0.5%.

The pound jumped in expectation that rates may rise sooner than expected.

Sterling rose 0.20% against the US dollar to $1.66.

If follows official data on Tuesday which showed inflation fell to 1.6% in July.

It is the first time there has been a split on the MPC since July 2011. Interest rates have been unchanged since March 2009.

The minutes came a week after the Bank of England published its quarterly inflation report in which it halved its forecast for average wage growth, saying it now expects average salaries to rise by 1.25% this year.

Pound Sterling v US Dollar

Last Updated at 02 Oct 2014, 06:26 ET *Chart shows local time GBP:USD intraday chart
£1 buys change %
1.6160 -
-0.00
-
-0.15

Data from the Office for National Statistics (ONS) also showed average wages excluding bonuses grew by just 0.6% in the year to June. That was the slowest pace of growth since records began in 2001.

However, the Bank upgraded its growth forecast for this year to 3.5% from 3.4%, and for 2015 it forecast growth of 3%, up from 2.9%.

Pressures

The MPC minutes showed that despite low wage growth both Mr Weale and Mr McCafferty felt that rapidly falling unemployment made it more likely that salaries would pick up in the coming months.

Both members made the argument that wages may not rise until spare capacity in the labour market was fully used up. But they also suggested an early interest rate rise was desirable as a way of anticipating inflationary pressures from wage rises.

The two members argued that recent robust economic growth had been underpinned by "stimulatory monetary policy" and that a rise of 0.25% would mean monetary policy remained "extremely supportive" given that before the 2008 financial crisis "normal" interest rates had been around 5% on average.

Bank Governor Mark Carney has said that any rise in interest rates would be gradual.

line
Analysis: Business reporter Jonty Bloom

Interest rates have been kept at the ultra low level of 0.5% since 2009 in an attempt to bolster the economy.

But for months now economists have been going through the minutes of the MPC with a fine tooth comb and examining almost every economic statistic for any hints as to when rates will rise.

So, two of the nine members of the MPC voting to increase rates is a massive clue for economists.

That matters not just for the millions of people with savings accounts, mortgages or other debts; it will also influence the rate of economic growth, the profitability of firms, the strength of the pound and the value of shares.

Which is why the subject is arousing so much comment and analysis.

line

City analysts said despite the split on the MPC, Tuesday's inflation figures showed the Bank remained under no immediate pressure to raise interest rates.

Peter Hemington, partner at BDO, said: "There are still big question marks for businesses on when the rise might come. Businesses cannot plan for growth on the basis of vague or conflicting statements - policymakers can do more to provide certainty for businesses, enabling them to make informed decisions for the future."

'Not secure'

David Kern, chief economist at the British Chambers of Commerce, said it was "disappointing" that two members had voted increase rates.

"With inflation well below target and wage growth stagnating, any increase in interest rates at the moment would be premature," he said.

"The economic recovery is still not secure and growth amongst UK businesses must be fostered in a low interest rate environment. The risks from raising rates too early are much greater than the risks of waiting just a little longer," he said.

Laith Khalaf, senior analyst at Hargreaves Lansdown described calls for an interest rate rise premature adding: "The last time the committee vote split was in July 2011, shortly before the eurozone crisis kicked interest rate rises into the long grass. Yesterday's inflation data and continuing anaemic wage growth may also put somewhat of a dampener on the enthusiasm for rate rises."

More on This Story

Related Stories

More Business stories

RSS

BBC Business Live

  1.  
    OIL SLIDES 11:13:
    North Sea Brent Crude

    As the chart above shows, oil prices have made a sharp move lower today. The benchmark contract for North Sea Brent crude is down 2.3% so far this morning. On Wednesday Saudi Arabia recently cut its official selling price to Asian customers, which has rattled traders. From a high in mid-June of $115 a barrel Brent crude has fallen 20% to under $92 per barrel. Let's hope lower petrol prices are on the way.

     
  2.  
    Via Twitter Brian Milligan Personal Finance Reporter, BBC News

    tweets: "Bank of England's new powers will hit speculative landlords"

     
  3.  
    ROLLS-ROYCE 10:45:
    Rolls Royce chief executive Torsten Muller-Otvos

    So how much for an entry level Rolls-Royce? Well, that would be the Ghost model, says the chief executive of Rolls-Royce, Torsten Muller-Otvos on News Channel. It will set you back around £200,000, he says. And remember that's just your basic model, pretty soon you'll be wanting to upgrade...

     
  4.  
    WONGA 10:35: Via Email Pat McFadden MP, member of the House of Commons Treasury Committee.

    emails: "We cannot have the usual routine response to these findings, which is that the company involved claims it is all in the past, that everything has changed and urges everyone to move on... I believe Wonga should be called back before the House of Commons Treasury Committee to be questioned."

     
  5.  
    Via Twitter Rory Cellan-Jones Technology correspondent

    tweets: "Unusual alliance - Nat Rothschild & Ken Livingstone unite against Uber, backing community ride-sharing app Maaxi"

     
  6.  
    ROCKET CRASHES 10:07:
    Rocket internet

    Oh dear. Shares in Rocket Internet have fallen up to 14% on their debut on the Frankfurt Stock Exchange. The Berlin-based internet firm owns a host of online businesses, including food delivery, taxi hailing and a fashion retailer. The share sale raised €1.4bn.

     
  7.  
    OFCOM BOSS LEAVES 09:56:
    Ed Richards, Ofcom chief executive

    Ed Richards is standing down as chief executive of Ofcom, the regulator of television, radio and internet services. Patricia Hodgson, Ofcom chairman, said: "Under his leadership, Ofcom has helped to deliver superfast broadband, 4G, lower prices, innovation, competition, and sustainable public service broadcasting in the UK."

     
  8.  
    WONGA 09:52:

    The Financial Conduct Authority is sending a message to the payday loan industry. Clive Adamson, director of supervision, said: "We are determined to drive up standards in the consumer credit market and it is disappointing that some firms still have a way to go to meet our expectations. This should put the rest of the industry on notice - they need to lend affordably and responsibly."

     
  9.  
    Via Twitter Adam Parsons Business Correspondent

    tweets: "FCA says did deal with Wonga requiring company "to make significant changes to its business immediately....should put industry on notice""

     
  10.  
    Via Twitter Neil Hume, Financial Times Commodities Editor

    tweets: "It's turning into a rout. Brent down 1.4% to $92.86 this morning in the wake of the latest Saudi OSPs [oil sales price] "

     
  11.  
    WONGA 09:21:

    Payday lenders like Wonga were criticised last year by the Office of Fair Trading for the number of times debt was rolled over, extending the amount of time a borrower has to repay, but also increasing the overall cost of the loan. Earlier this week, Wonga said 2013 profits fell by 53% to £39.7m due to "remediation costs" - money it had to pay back to customers as a result of its own mistakes.

     
  12.  
    WONGA 09:09: Breaking News
    Wonga logo

    Wonga will write off the debts of 330,000 customers who are in arrears of more than a month. Another group of 45,000 customers who have been in the red for less time can pay their debt without interest and charges. Wonga is doing this following "discussions" with City watchdog the FCA.

     
  13.  
    DOMINO'S PIZZA 08:58:
    pizza

    Shares in Domino's Pizza are up 2.2% after the fast food firm said third-quarter sales were up 12.9%. The company says it has been helped by a shift to online sales.

     
  14.  
    CONSERVATIVE CONFERENCE 08:37:
    Prime Minister David Cameron

    The Daily Telegraph is swooning over Prime Minister Cameron's conference speech. "Electrifying," is how it describes the PM's pledge to raise the 40p tax threshold. The Telegraph doesn't quite claim credit for the move, but does remind us that it has been campaigning for such a reduction.

     
  15.  
    MARKET UPDATE 08:27:

    The FTSE 100 is down 0.24% in early trading following a 1.4% loss for the Dow Jones in on Wednesday.

     
  16.  
    PARIS MOTOR SHOW 08:11: BBC Radio 4
    Discovery Sport

    Jaguar Land Rover has plenty to boast about at the Paris Motor Show. It has doubled sales volume and employment in five years. On Today Andy Goss, global sales director says that 80% of its output is exported. But to compete it has to build plants abroad, he says. A new plant opens in China at the end of this year and one in Brazil around a year later.

     
  17.  
    VIRGIN MONEY FLOAT 08:03: Via Email Kamal Ahmed BBC Business editor

    emails: "Virgin Money's announcement of its intention to sell a stake on the London stock exchange brings to an end another chapter in the sorry story of Northern Rock. The functioning bits of the bank, which spectacularly collapsed in 2007 and was bailed out in February 2008 with £1.4bn of tax payers' money, were bought by Sir Richard Branson and US investor WL Ross for £747m in 2011."

     
  18.  
    MARKET REPORT 07:50:
    Share price board, Tokyo

    It has been a shaky session for shares in Tokyo, the Nikkei 225 index closed 2.6% lower at 15,661. The Hang Seng in Hong Kong, which has fallen more than 9% since hitting a six-month peak in September amid pro-democracy protests, is closed for a public holiday.

     
  19.  
    Via Twitter BBC Radio 4

    tweets: "'Downgrade could follow Brexit' says Standard and Poor's Mortiz Kraemer @EthicalMan"

     
  20.  
    HEADLINES
     
  21.  
    LORD HILL 07:33: BBC Radio 4
    Lord Hill

    "He showed no grasp of the issues," is the verdict of Phillippe Lamberts, co-chair of the Greens in the EU parliament, on Lord Hill's appearance before European members of parliament on Wednesday. "Behind his charm there was apparently little knowledge of the subject matter at hand," Mr Lamberts said on Today.

     
  22.  
    VIRGIN MONEY FLOAT 07:26:

    So, will ordinary folk be able to buy shares in the Virgin Money offering? Not until they start trading. The offer is open to "certain institutional investors". Although they are giving staff £1,000 of shares apiece.

     
  23.  
    VIRGIN MONEY FLOAT 07:11:

    Virgin Money has announced details of its share sale. The firm hopes to raise £150m from the sale of about 25% of the bank, it said. If the sale is successful the Treasury will receive £50m, which was part of the deal when Virgin Money took over assets from Northern Rock.

     
  24.  
    ECB MEETING 06:57: BBC Radio 4
    Eurozone sign

    The European Central Bank (ECB) hosts its monthly meeting in Naples today, amid worries that the eurozone economy is deteriorating. "The ECB can buy time for governments to act... but it cannot generate lasting growth," says Moritz Kraemer from Standard & Poor's on Today. He says Europe needs to reduce the debt load of households, firms and governments.

     
  25.  
    PIMCO EXODUS 06:48: BBC Radio 4

    Investors have taken £14.5bn out of the investment firm Pimco since its founder Bill Gross resigned last week. Andrew Balls, chief global investment office at Pimco, says "it's calmed down very quickly though". The departure was not a huge surprise, he reckons. Mr Balls reminds listeners to Today that Mr Gross was 70 "and wouldn't be there [Pimco] for ever". Ouch.

     
  26.  
    PARIS MOTOR SHOW 06:40: BBC World News
    Rolls Royce chief executive, Torsten Muller-Otvos

    "We are on the roll ja," says the German chief executive of Rolls Royce Motor Cars, Torsten Muller-Otvos on World Business Report. He expects the company to have another record year. He is standing in front of a limited edition Rolls-Royce Phantom, only 20 were made and, sorry readers, they are all sold out.

     
  27.  
    SHARING ECONOMY 06:31: Radio 5 live

    What is the sharing economy? "The sharing economy defines the assets you own and skills you have" says Debbie Wosskow, chief executive of Love Home Swap on 5 live. (Are we clear now?) Customers need protection, but regulation needs to keep up with this emerging market, she says. She's writing a review into the sharing economy.

     
  28.  
    CONSERVATIVE CONFERENCE 06:17: Radio 5 live

    Lord Digby Jones, the crossbench peer and businessman is on 5 live after his appearance at the Conservative Party conference. He is worried people think money grows on trees, rather than coming from business, but also says business should mend its image: "I don't want chief executives paying themselves big bonuses [right now]. They may deserve it, but it sets a lousy example."

     
  29.  
    ARGENTINA 06:13: Radio 5 live
    President Cristina Fernandez

    The boss of Argentina's central bank has resigned. Juan Carlos Fabrega had been calling the government to tackle inflation and rein in spending. That created conflict with the nation's economy minister. The BBC's South American Business Reporter Katy Watson says the resignation doesn't make President Cristina Fernandez de Kirchner look good either.

     
  30.  
    PARIS MOTOR SHOW 06:07: Radio 5 live

    Jurgen Stackman, chairman of carmaker Seat is on Radio 5 live. Ten years ago electric vehicles were seen as the future, so what went wrong? Industry watchers were very optimistic about the speed of people picking them up, he says. Electric cars still have mileage and range limitations and families with one car don't want to rely on an electric car, he adds.

     
  31.  
    US SHARES SLIDE 06:00: BBC World News
    New York Stock Exchange

    There were sharp losses for US shares overnight. On World Business Report, Michael Hewson, chief analyst at CMC Markets reminds us that the US market has had a good run recently. But there is not much to be positive about at the moment, he says. The recent economic data from China and Japan has not been great. Traders are also preparing for higher interest rates in the US, Mr Hewson says.

     
  32.  
    06:00: Howard Mustoe Business reporter

    Good morning. You can get in touch via email bizlivepage@bbc.co.uk and on twitter @BBCBusiness

     
  33.  
    06:00: Ben Morris Business Reporter

    There were sharp losses for US shares overnight, so it will be interesting to see how Europe responds to that later. Plus we'll have reports from the Paris Motor Show. It should be a fun morning, so stay with us.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.