BoE Split On Rate For Second Time; Signals Early Rate Hike

The Bank of England's rate-setting body decided to hold the record low interest rate steady on Thursday, again in a split vote as a policymaker sought a hike.

Although seven members of the Monetary Policy Committee voted to keep the rate unchanged at the May meeting, the bank signaled that the rates need to be raised somewhat by a greater extent than markets expect.

The MPC, governed by Mark Carney, voted 7-1 to maintain the bank rate at 0.25 percent. Kristin Forbes sought a 25 basis point rate increase for a second policy session in a row.

All other seven members said the current monetary policy setting remained appropriate to balance the demands of the MPC's remit.

The committee also voted unanimously to maintain the asset purchase programme at GBP 435 billion.

At the press conference, Carney said the current monetary stimulus is appropriate, not excessive.

If the economy expands as estimated, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve underlying the May projections, the bank said.

In the Inflation Report, the bank downgraded its 2017 growth outlook to 1.9 percent from 2 percent, citing weakening household spending. Growth for the second quarter was forecast at 0.4 percent.

Nonetheless, the bank lifted the growth projection for 2018 to 1.7 percent from 1.6 percent and that for 2019 to 1.8 percent from 1.7 percent.

Policymakers expect inflation to rise further above the target in the coming months, peaking a little below 3 percent in the fourth quarter.

The bank raised its inflation forecast for 2017 to 2.7 percent from 2.4 percent. The projected overshoot entirely reflects the effects of the falls in sterling since late November 2015 on import prices, the BoE said.

For 2018, inflation is forecast to be 2.6 percent and 2.2 percent in 2019.

The latest forecast is based on the assumption that the adjustment to the UK's new relationship with the European Union is 'smooth'.

The MPC meeting was conducted with eight members instead of nine as the bank is yet to fill the vacancy caused by the resignation of Charlotte Hogg.

James Smith, an economist at ING DiBa, said Forbes, who voted for the rate hike today, leaves the committee in June. That will make it harder to form a majority in favor of lifting rates.

The economist continues to expect policy to remain on hold until Brexit talks conclude in 2019.