Nothing holds one’s attention like a British thriller and when the plot takes an unexpected turn, it is even more intriguing.
In an unexpected move, the Bank of England voted to postpone an interest rate increase with only one member of the rate-setting Monetary Policy Committee, Ian McCafferty, voting to put up rates from their historic floor of 0.5 per cent. Most economists had forecasted that at least one other would push for tightening.
The BOE warned, however, that it was possible the mortgage rates offered by banks could rise’ shortly’ pointing to the fact that the banks’ own funding costs have been going up since May.
Dovish Vote
The 8-to-1 vote is seen as a dovish indicator, a continuation of a period of six years under emergency stimulus programs.
David Tinsley, an economist at UBS Group AG in London agreed that the vote was indeed “… quite dovish. One of the largest surprises was that they didn’t take any upside news, really, from pay growth.”
The vote sent the pound downwards at $1.5523 as of 1:21 p.m. London time, down 0.5 percent on the day. The 10-year gilt yield was little changed at 1.97 percent.
According to the Mark Carney, the BOE governor, price growth should average just 0.3 percent this year, down from 0.6 percent in May, before picking up momentum to 1.5 percent in 2016.
“The near-term outlook for inflation is muted,” said Carney. “ and the falls in energy prices over the past few months will continue to bear down on inflation at least until the middle of next year.” “Nonetheless, “ he continued, “a range of measures suggest that medium-term inflation expectations remain well anchored.”