Bank united on rate decision
THE Bank of England voted unanimously to keep rates on hold at 4.5% earlier this month, amid concerns of a slowing property market. Minutes from the nine-strong monetary policy committee's meeting state there was 'no argument for a third successive rise' after the back-to-back quarter point hikes in May and June.
The committee acknowledged that there were 'tentative signs of a slowdown' in the housing market but that price remained in line with the Bank's own expectations. Evidence has since revealed a sharp slump in the property market. Earlier this week, the Royal Institute of Chartered Surveyors reported price falls in London and the South-East.
The meeting minutes also revealed the committee felt that a third hike in a row would not only have been unexpected, but might 'prompt an unwarranted re-evaluation in the committee's strategy by market participants'.
The MPC also said the near-term outlook for inflation according to the consumer prices index, currently 1.6%, is that it will be below the 2% target.
However, some members had considered a rate hike, although it considered the arguments for no movement were 'more persuasive'.
Arguments for a hike included the lack of spare capacity in the UK's recovery economy which meant there was 'no compelling reason to delay' a hike. Also, with the interest rate cycle having clearly turned, a hike would not have shocked the market either. In addition, wage pressures were slowly rising.
The MPC is expected to increase rates to 4.75% at its next meeting in the first week of August. The base rate has increased from a low of 3.5%, with the first rise last November.
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