The Bank of England’s rate setting body was unanimous in holding interest rates at record lows in April, although showed more optimism about the path of recovery in Britain and the neighbouring Eurozone, official transcripts revealed on Wednesday.
The BOE’s Monetary Policy Committee voted 9-0 in favour of keeping the overnight rate at 0.5% and the size of the asset purchase facility at £375 billion, the minutes of the April 8-9 policy meetings revealed. Two officials said their decision to hold rates was again “finely balanced,” suggesting they may soon vote in favour of higher rates. Those two members were likely Ian McCafferty and Martin Weale, who had previously voted to raise interest rates last year.
BOE officials said they expect the consumer price index (CPI) to fall into negative territory this year and that inflation would remain well below the Bank’s 2% target for until next year. This gives policymakers plenty of scope in keeping monetary policy highly accommodative for the foreseeable future, despite steady economic growth.
The Office for National Statistics (ONS) will produce a preliminary estimate of first quarter GDP growth next week. Britain’s gross domestic product grew 0.6% in the final three months of 2014.
Despite the BOE’s cautious approach, officials were more upbeat about the recovery, saying that a stronger economy would eventually generate greater inflation and higher earnings. The ONS reported earlier this month that average earnings excluding bonuses increased by 1.8% in the three months through February.
BOE officials also acknowledge the recent improvement in the economic data, especially for the Eurozone, the UK’s biggest trade partner. While it was “too early to be confident, a succession of firmer data suggested that growth in the euro area economy was picking up,” the minutes of the April meetings also showed.
The BOE expressed confidence that the European Central Bank’s quantitative easing program was already helping the Eurozone get back on its feet after a disappointing 2014.
The BOE is unlikely to raise interest rates any time soon, although steady economic growth could lead to further dissention at the MPC. Committee members Weale and McCafferty had voted in favour of raising interest rates at each meeting between August and December of last year. They voted with the consensus around the time that Britain’s inflationary outlook began to deteriorate significantly.