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Mark Carney, governor of the Bank of England (BOE), gestures while speaking during the bank’s quarterly inflation report news conference on Thursday, Aug. 4, 2016.
The Bank of England (BOE) held interest rates steady at 0.25 percent on Thursday, however, policymakers appeared increasingly in favor of a rate hike amid soaring inflation.
The central bank was widely expected to remain cautious at its latest monetary policy committee meeting, particularly given the inconclusive election last week and the precarious position of the U.K. economy ahead of Brexit talks.
However, two BOE rate-setters joined last month’s sole dissenter, Kristin Forbes, in voting for a 25 basis point rate hike. Michael Saunders and Ian McCafferty – the policymakers identified as the most likely to push for an increase in interest rates – defied Governor Mark Carney’s proposition for the bank rate to be maintained at 0.25 percent.
Had rate-setters voted 4-4 to lift interest rates by 25 basis points, Carney would have ultimately decided the outcome.
Meantime, the Committee voted unanimously to maintain corporate bond purchases at £10 billion (12.7 billion).
Further to this, all rate-setters supported keeping the stock of U.K. government bond purchases unchanged at £435 billion.
Inflation soars as sterling depreciates
The BOE had faced increasing pressure to consider a rate hike ahead of Thursday’s meeting as inflation soared to highs not seen in almost four years. Prices surged to 2.9 percent last month – almost a full percentage point higher than the central bank’s target.
The BOE’s last monetary policy move came back in August last year when Governor Mark Carney announced an emergency rate cut following the U.K.’s vote to leave the European Union.
On Thursday, the Committee noted that the most significant change in the financial markets since meeting in May had been the depreciation of the sterling exchange rate.
Sterling has fallen by around 2.5 percent compared to the 15 working day average used in the BOE’s May Inflation Report, with a substantial part of the depreciation coming about as a consequence of the General Election last week.
While investors detected a mild sense of hawkishness from the central bank’s policymakers a few weeks ago, Thursday’s meeting had been expected to convey a much more dovish tone.
Instead, three rate setters are now in favor of raising interest rates by 25 basis points. The BOE did note all three dissenters would wish to increase rates at a gradual pace and to a limited extent.
Governor Carney expressed his thanks to Kristin Forbes, one of the rate setters in favor of lifting rates, for her final contribution before she steps down as a member of the Committee.