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Bank of England's Forbes cast sole vote for rate hike, first split since July 2016

Published 03/16/2017, 08:07 AM
Updated 03/16/2017, 08:10 AM
© Reuters.  Bank of England's Forbes cast sole vote for rate hike, first split since July 2016

By William Schomberg and Andy Bruce

LONDON, March 16 (Reuters) - A Bank of England policymaker unexpectedly voted to raise interest rates this week and some among the majority who kept them at a record low felt it would not take much for them to follow suit, the BoE said.

Kristin Forbes, who is due to leave the British central bank in June, cast the sole vote in favor of raising Bank Rate to 0.5 percent, representing the first split on the Monetary Policy Committee since July of last year.

The other eight members of the MPC opted to keep rates at 0.25 percent, signaling no immediate hurry on the part of the BoE to emulate the U.S. Federal Reserve which raised interest rates on Wednesday for the third time since the global financial crisis.

Economists taking part in a Reuters poll had expected all nine MPC members to vote to keep rates unchanged.

The BoE expects Britain's economy to grow by a relatively strong 2.0 percent this year after withstanding the Brexit shock in 2016, but then to slow due to uncertainty about the country's exit from the European Union.

Most economists have predicted that the BoE will leave interest rates unchanged until 2019 at the earliest.

At their meeting this week, its policymakers mostly felt there were signs that consumers were turning more cautious as wage growth slowed and inflation rose, pushed up by the post-referendum fall in the value of the pound.

"Pay growth had remained subdued, consistent with the Committee's view that some slack remained in the labor market, and there had been some signs that the squeeze in households' real income growth was feeding through into spending, as expected," the Bank said in minutes of the March MPC meeting.

Data published on Wednesday showed annual pay growth slowing to 2.2 percent in the three months to January, heading in the opposite direction to the Bank's forecast of an increase to 3 percent in 2017 as a whole.

However, among the eight-strong majority, "some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted," the minutes said.

The BoE's nine policymakers voted unanimously to make no changes to its bond-buying stimulus program, in line with the expectations in the Reuters poll.

The BoE said in February that some of its rate-setters had "moved a little closer" to their limits for tolerating an overshoot of the Bank's inflation target, caused by sterling's slide since June's Brexit vote.

Forbes, who is due to return to her career as a U.S. academic after leaving the BoE in June, had signaled she was getting uncomfortable with keeping rates on hold.

Thursday's minutes showed she felt measures of domestically generated inflation - and not just price pressure from the slump in the value of sterling since last June's Brexit vote - had increased notably and the expected post-referendum slowdown in the economy had not materialized. OLUSECON Reuters US Online Report Economy 20170316T120559+0000

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