Bank Of England MPC Split Deepens Amid High Inflation

The Bank of England decided to leave its record low interest rate unchanged on Thursday, but the split among policymakers widened as more members sought a hike, citing the rising inflation.

The Monetary Policy Committee, headed by Governor Mark Carney, voted 5-3 to hold the interest rate at a record low of 0.25 percent. However, all eight members voted to maintain the quantitative easing at GBP 435 billion.

Along with Kristin Forbes, Ian McCafferty and Michael Saunders also sought a 25 basis point increase in interest rate in the latest session. Forbes is set to step down from the rate-setting body and will not be present at the next session on August 3.

For these members, the outlook justified an immediate increase in Bank Rate. Further, they also pointed out that the slack in the labor market appeared to have diminished.

Nonetheless, all members agreed that any increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.

The withdrawal of part of the stimulus that had been injected in August last year would help to moderate inflation overshoot, while leaving monetary policy very supportive, members arguing for tightening said.

Inflation has accelerated to a near four-year high of 2.9 percent in May. Members noted that inflation could overshoot the target by somewhat more than previously suggested.

Most of the members said a slowdown in household consumption, and GDP as a whole, had recently begun, and it was too early to judge how large and persistent it would prove to be.

A period of slower than expected growth could see a margin of the slack re-opening, the minutes showed.

This was the first policy meeting after Prime Minister Theresa May lost the Conservative parliamentary majority at the June 8 general election. The inconclusive election has raised the uncertainty over the policy as well as Brexit.

Moreover, ongoing political uncertainty is consuming precious negotiating time with the European Union.

With the economy having weathered political uncertainty relatively well in the recent past, and signs emerging that the Government may be about to ease back on austerity, today's statement supports the view that the first hike in rates will come much sooner than the April 2020 date implied by markets ahead of today's meeting, Paul Hollingsworth, an economist at Capital Economics, said.