The Bank of England released its policy meeting minutes from the August 6-7 meeting today, surprising markets by showing a more hawkish inclination than usual. Two of the central bank’s 9-member Monetary Policy Committee (MPC) were in favour of hiking interest rates in August.
This was the first time in three years that not all nine MPC members voted in unison not to raise rates, ever since the benchmakr rate was put to record lows of 0.5%. Martin Weale and Ian McCafferty had both voted to start raising rates in August.
The news had a positive impact on sterling as investor expectations for the timing of the first rate hike were brought forward.
Some analysts had expected a rate hike by March 2015 following last week’s dovish Quarterly Inflation Report but after today’s more hawkish BoE minutes, expectations have been brought forward a bit to at least February.
However Tuesday’s soft UK inflation data suggests there is still considerable slack in the British economy and given that inflation was well below the BoE’s target of 2% and wage growth is sluggish, there is no justification to raise rates too soon. Consumer prices rose 1.6% on the year in July, well below forecasts of a 1.8% rise.
Today’s MPC voting structure nevertheless gave a temporary boost to the pound which jumped to an intraday high of 1.6677, moving off a 4-month low of 1.6717.