No change in rate sentiment at the Bank of England

In recent years, the Bank of England Monetary Policy Committee (MPC) deliberations have often resembled the film Groundhog Day. 

While the body has moved on the issue of quantitative easing – gradually raising its asset purchases to £375 billion – the base rate has remained at its record low level month after month since March 2009. If the 0.5 per cent base rate is a town, it is definitely Punxatawney.

For most of that time, the MPC has been unanimous on this particular question, bar a few months in 2010 and 2011. However, in 2014 a new split has repeated itself month after month – a 7-2 division with Ian McCafferty and Martin Weale both arguing for a 0.25 per cent increase.

The minutes of October’s meeting have confirmed that this pattern has been repeated once again – and for the same reasons. For the majority, the evidence is that the level of inflation is simply too weak to justify a tighter monetary policy; so weak in fact that even as slack is used up in the economy it will stay below the target rate of two per cent. With a current level of 1.2 per cent, this view may seem justified.

For Messrs Weale and McCafferty, the priority should be to anticipate inflationary movements, such as a rise in wages from mid-2015. They also saw the current low level of price increases as a consequence of the exchange rate and material prices.

Those tasked with risk management in businesses may note these arguments are familiar ones, being exactly the same as voiced in September, and August before that. 

Some expect this process to go on for some time, with investment director at Aegon UK Nick Dixon predicting that the latest UK gross domestic product figures – to be published this week – will show the impact of a “worrying cocktail” of worsening economic data.

He remarked: “Many are expecting Friday’s GDP data to show an economy coming off the boil and, together with lack of inflation and rising geopolitical risk, the committee is in no hurry to raise base rates.  

“Unless we see a dramatic change in these trends, we’re unlikely to see a rate increase until after the 2015 election.”

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