Inflation brushed aside as Bank of England votes against rate rise

Mark Carney Artwork 480

The Bank of England has voted against an interest rate rise in its latest monetary policy meeting, despite a return to rising inflation revealed this week.

Only two MPC members voted against holding rates at 0.25 per cent. The committee voted unanimously to maintain government bond purchases assets at £435bn and corporate bonds at £10bn.

The minutes forecast inflation to hit 3 per cent in October, the threshold at which Bank of England Mark Carney must write to the Chancellor to explain the overshoot from the 2 per cent target.

They warn that monetary policy could tighten by a “somewhat greater extent over the forecast period than current market expectations”.

Share Centre investment analyst Helal Miah says he expects governor Mark Carney to sound out concerns about inflation at this afternoon’s press conference following the decision.

“Care needs to be taken in the wording used so not to derail the already modest and slowing growth in economic activity.

“With consumer’s real incomes falling, they are becoming more cautious and spending less. This is reflected in the increasing number of retailers with profit warnings or expressing cautious outlooks.”

Consumer confidence fell to its lowest point since December 2013, according to the latest Thomson Reuters/Ipsos Primary Consumer Sentiment Index, released today.

Ipsos Mori managing director of public affairs Bobby Duffy says confidence in job security fell substantially and there were weakening perceptions of investment.

Unemployment figures released on Wednesday reached multi-decade lows of 4.3 per cent, but wage growth of 2.1 per cent failed to keep up pace with inflation.

“Constant wrangling and positioning in the ongoing UK/EU talks may be contributing to this uncertain outlook while weak wage growth continues to bite,” Duffy says.

The MPC minutes warned on the limited capacity for monetary policy to support the UK’s exit from the European Union.

“Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years,” the minutes say.

The MPC adds that inflation remains likely to overshoot the 2 per cent target over the next three years.