Many had expected the vote to be split seven to two, and took the decision (and the commentary surrounding it) as an indication that the committee remained less hawkish than hoped.
But, while the timing of a rate hike remains decidedly a 2016 story, on the evidence of ‘Super Thursday’ there are reasons to be bullish on the recovery in the UK economy and on the path for interest rates.
As Stephanie Flanders chief market strategist for Europe at J.P. Morgan Asset Management said: “The key message from the Bank of England today is that markets are right to expect the first rate rise to come a little sooner than expected a few months ago. But with inflation now expected to be a little weaker, and productivity somewhat stronger, the Bank’s policymakers do not think a rate rise is in any way imminent – nor is it likely to happen before the end of 2015.”
Indeed the pickup seen on the productivity front is an area of encouragement for the Bank, as increased productivity, along with some tightening in the labour market, has led to wage growth.
Bank of England Governor, Mark Carney, said during the press conference Q&A that, while none of the committee pre-commits to any future rate decision, “What we do see is an economy where the slack is being used up. Where we are starting to see wages increase and a pick-up in unit labour costs.
He added: “There are some offsetting effects, but the support for a rate rise is growing and we will be looking for confirmation of that. We have a recovery that has turned into an expansion based on robust domestic demand. There is very low inflation but gradually building inflationary pressures.”
That said, the bank did add that the near-term outlook for inflation remained muted, weighed down by lower energy costs. A weight the bank expects to bare down on inflation at least until the middle of next year.
