The vote to keep rates on hold remained a unanimous nine members to zero however the minutes noted that the decision is now ‘more balanced’ for some committee members than it has been over the past five years. The minutes also acknowledged that there is a chance the UK’s robust economic growth would not slow down later this year as had been expected by many until recently.
The minutes are likely to add fuel to the fire of expectation that the first change in the UK base rate since 2009 will be a 2014 event, having been seen as a mid-2015 move until recently.
The Bank said in the statement that a rise by Q2 in 2015 was fully priced in and polls of forecasters are now indicating the consensus is Q1 next year is the likeliest time for a rise. It said that before the latest meeting of the committee, forecasters put a 15% chance on a rise by the end of 2014. That figure seems likely to rise.
Schroders meanwhile is bringing forward its forecast for the first interest rate increase to February 2015 on the back of the ‘mixed messages to markets’.
“The meeting minutes revealed that early indicators of economic activity had been stronger than expected, and so the Bank’s central view that the economy may slow in the second half of the year may prove to be too pessimistic,” said Schroders' European Economist Azad Zangan.
“Overall, the messages from the minutes were mixed and somewhat puzzling; despite the Bank stating that forward guidance would be data dependent, very little new information is available, and even less than would prompt markets to expect higher interest rates sooner as suggested should have been the case by Carney,” Zangan added.
