While the committee remained unanimous in keeping rates on hold at 0.5% yet again, the minutes said there was ‘a range of views among committee members’ on domestic and external prices, and the relationship between them.
The minutes also said for a number of committee members ‘the balance of risks to medium-term inflation relative to the 2% inflation target was becoming more skewed to the upside’.
In other words, a rate rise may be needed sooner than later to ensure the Bank does not lose its grip on prices.
There was a nod however to the potential economic drag created by the Greece crisis, with the committee members citing that as a factor in the decision to keep rates on hold.
“The language on policy has changed: the minutes said that absent Greek worries, a number of members saw the decision between holding and raising rates as becoming more finely balanced,” said Investec’s Chris Hare. “But Greece was “a very material factor”, which made the decision to hold this month “clear cut” for all members.”
“Greece caveats notwithstanding, we see these minutes as part of a gradual move towards policy tightening,” Hare added. “This is the last set of minutes before the simultaneous publication of the Inflation Report, policy statement and minutes on 6 August. At that point, there is a chance that one or two members might start voting for a rate hike. Our view is that MPC majority will make its first move in Q1 next year, before pursuing a “gradual and limited” course of rate rises thereafter.”
Coinciding with this, Chancellor George Osborne released a potentially significant consultation paper on plans for further development of the Bank of England’s role in managing the UK economy.
