The most recent meeting of the Bank of England’s monetary policy committee (MPC) saw a margin of six to three against a rate rise, leading to predictions that the next committee meeting in August could see the base rate increase.
In a break from tradition Andy Haldane – the Bank’s chief economist – broke ranks and joined Ian McCafferty and Michael Saunders in calling for an increase in interest rates – leading many to speculate that the next rise is just around the corner.
In response to the vote, the value of sterling rose against the dollar to $1.3220 – a gain of half a cent on the earlier figure in the day of $1.31.
Despite suggestions after last year’s initial rate rise that the base rate would increase steadily, the MPC has delayed increasing the rate amid worsening reports on the state of the UK economy.
The Bank said its meeting in May had been a blip and predicted that the economy would recover.
“This judgment appears broadly on track. A number of indicators of household spending and sentiment have bounced back strongly from what appeared to be erratic weakness,” the Bank added.
Analysts believe the latest split of three against six is an indication that the August vote will see interest rates rise – although they have warned that much will depend on how the economy performs in the coming weeks.
Tej Parikh, a Senior Economist at the Institute of Directors, said: “The MPC risks dampening confidence with a premature rate hike, particularly while political noise continues to bring uncertainty for businesses.”
Whilst Jeavon Lolay of Lloyds Bank said: “The surprising switch by Bank of England Chief Economist Haldane to support an immediate rate hike puts August firmly on the table.”