The minutes stated that “The relatively low probability attached to a Bank Rate increase this year implied by some financial market prices was somewhat surprising”. This supports the recent comment by Governor Carney “It could happen sooner than markets currently expect”.
Furthermore, the minutes stated that “The economy is starting to return to normal. Part of the normalisation would be a first raise in Bank Rate at some point”. However the precise timing of the rise would depend on the outlook for inflation.
The central view by most of the Committee members was that spare capacity (measured as the output-gap) remained in the region of 1.0-1.5% of GDP in Q2 2014. The slack is however expected to be absorbed more quickly than MPC previously expected.
The activity in the housing market has slowed down but there is uncertainty about the persistence of the slowing activity. However, this is primarily the responsibility for the Financial Policy Committee (FPC). The MPC noted that the FPC would have an opportunity to consider the housing market issue at its June policy meeting.
As expected the Committee voted unanimously to keep the Bank Rate at 0.5% and the issuance of central bank reserve sat £375 billion.
Despite better growth prospects the 1.5% inflation in May, well below the 2% target, suggests that a rate hike is still remote.
Nordea