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MPC split six-two over base rate hold decision

06 August, 2017, 01:36 | Author: Samuel Sharp
  • Office business tools with dollars and calculator on table

David Hollingworth from L&C Mortgages said the scheme has helped boost competition in the mortgage market and "underlines that rates won't necessarily remain at the current lows forever".

Mr Broadbent said the Brexit vote had caused inflation to march higher and there had to be a "trade off between stabilising inflation and keeping the economy going".

"Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth".

Minutes of officials' discussions show that two members of the eight-strong rate-setting panel voted this month for an immediate rise in borrowing costs but were outvoted by a majority that favored staying on hold for now.

On Thursday, the Bank said it saw GDP growth of 1.7 per cent this year, down from the 1.9 per cent it projected in May.

Britain's central bank has cut it forecasts for the United Kingdom economy, saying it expects growth to remain "sluggish" over Brexit uncertainty. The buildup in consumer borrowing also received attention as it has risen to levels last seen before the 2008 financial crisis - this makes raising rates even more hard as borrowers are already struggling to meet obligations in an environment of ultra-low interest rates.

However, two members of the committee - Ian McCafferty and Michael Saunders - voted to raise borrowing costs and the Bank signalled that investors should prepare themselves for more interest rate increases than they now expect.


Mark Carney, the bank's governor, said that businesses are now putting investments on hold because of uncertainty over Brexit.

Some tightening will be needed in the next three years. The speed limit, if you will, of the economy has slowed...

The still rising consumer credit levels and the savings rate falling back to a record low of 1.7 percent in the first quarter are likely to provide a supportive argument for those who want to raise interest rates in the near future.

"The loss in real income as a result of the depreciation in sterling may also lead to some people wanting to work longer hours to make up that loss", the bank's inflation report said.

The bank said that its projections are conditioned on the average of a range of possible outcomes for the UK's eventual trading relationship with the European Union, with the pound falling one cent against the dollar after today's forecast. Also, the encouragement to save instead of spend may, to some extent, slow down the economy. Inflation was forecast to peak at 3 percent in October and to fall to 2.8 percent next year.

The new Bank of England forecasts reflect the deterioration of the economic outlook since May as faster inflation outpaces wage gains, holding back consumer spending.

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